How does the scam work and what can they do with my PayPal address?

If they have your PayPal address they can be very adept at getting your password.  They will send you an email that looks exactly like a genuine PayPal email.  Somewhere on that email there will be an instruction to log into your PayPal account using a link in the email.  Click that link and you will be taken to a fake PayPal login page that exactly like the real PayPal login page.  HOWEVER, when you put your PayPal acct name/email and your password you may get taken to a page indicating that there are problems accessing your account and to try again in an hour (it will look like a real PayPal page).  By then they have your login and your password.  If you have a credit card or bank acct linked to your PayPal acct they can do you serious financial harm.  AND if you are like a lot of eBayers, your password for eBay and PayPal are the same which will let them hijack your eBay acct and do the same thing all over again while you sleep.

Does PayPal seller protection cover sellers when the buyer uses a stolen card or initiates a credit card chargeback?

(buyer has a 29 feedback score 100% positive)

The fact that they want you to end the listing so they can then pay you directly through your PayPal should be RINGING ALARM BELLS LOUDLY !!!!  Forget about protection and chargebacks . . . . THIS IS A SCAMMER AND YOU NEED TO END ALL COMMUNICATIONS AND THOUGHTS OF DEALING WITH THEM.

I don't doubt what you say at all and I'll be following all your advice about blocking them, i just don't understand the risk to me.

They will change your passwords so that even you can no longer log in to your accounts.  And while you are emailling eBay and PayPal they are ripping off you and other eBayers.   IS THAT ENOUGH OF A RISK.

Now, you may be blinded by the possibility of getting $1120 for your laptop and that you will send by trackable means so you have PayPal protection . . . . BUT YOU WILL REGRET IT FOR A LONG LONG TIME.

(sorry for the shouting . . . . I just want to emphasize the point that this guy is a scammer . . . . and your followup post and questions about risk/protection gives me the impression you just don't get it yet)