Jim is standing over there, and shouts out "50c to buy this apple". Flash the wonder asshole stands close to Jim, so he hears this first. He then runs to Jon at the speed of light (which is faster than sound) and asks Jon "Would you buy an apple for 51c?". Jon says "why yes, that sounds reasonable". Note, Jon would, by definition, also be happy to pay 50c for the apple. But Flash is a fast fucker, and the sound of Jim's call hasn't reached Jon yet, so Flash buys the apple and runs to Jon and sells it to Jon at the higher price.
In economic terms, Flash has pocketed the surplus 1c, which would otherwise would have accrued to Jon (as he would have paid 1c less than his maximum). Sounds great so far, Flash is benefiting from his l33t running skills, Jim got his price (50c) and Jon paid what he was prepared to pay (51c).
Except it's not that simple, or rosy.......
First of all, Flash is running between willing participants in a market, adding no value to anyone but himself (arguably he is destroying value by forcing the exchanges to put in more and more expensive infrastructure, which everyone in the market is paying for). The fact that Jim sells his apple a microsecond faster is not relevant to a normal market participant.
Second, and much worse, Flash is not actually asking Jim "would you like to buy an apple for 51c". He's asking "would you like to buy for 51.05c", ah, no, "how about 51.049", no? how about "51.048" and so on (creating and cancelling orders all the time, massively loading up the system). Simultaneously there are two possible ways he's trying to figure out Jim's minimum price -- he's either asking Jim "sell for 49.99?", "49.991?", "49.992" ....until Jim says "yes" or, if he's a real scumbat, saying "I'll give you 50.5" and when Jim says "OK", say "Hah, made you look, order is cancelled, how about 50.45" and because he is so quick, he can cancel before the order fills.
Oh yes, and if you screw up, you go plead to the market to get your positions reversed. And because you pay so much to the market in fees (stock exchanges are companies, which charge traders to participate in the market), the market turns a blind eye.
And that, kids, is why HFT is fucking antisocial scum -- they manipulate the markets for their own ends, squeezing out surplus for only their own benefit. They add no value to anyone but themselves (increased liquidity is a trope -- no normal investor needs microsecond delivery). They've corrupted their system of oversight (the exchanges) to be dependent on the fees they pay.
One solution: ticked trading, bids and offers get queued and matched at a fixed interval (say every 0.5s), this would kill HFTs immediately as you can no longer run between Jim and Jon faster they can communicate themselves.
Alternative solution involves tar, feathers, a rail and a town.