Ebay is better than craigslist but not quite as "safe" as Amazon. I have made MANY buys from Ebay and to this day the only fiasco I ever encountered with them was from a seller that sent me the wrong item. Of course contacting the seller I was eventually able to get my moneys back AND keep the stuff they sent me. Its all about knowing what to watch out for, reading the description and checking feed back. Also leave feedback when you get finished with a transaction to let others know how your deal went.
Now I have never had to use them and I do not know how in depth their response would be to each situation but I do believe that you can have Ebay step in on your behalf if something is ever wrong and you are unable to right it thru/with the seller.
Personally I do not do auctions, I just go for the Buy It Now button. This is because I don't have the time or money to be playing with the auctions lol.
As to the legitimacy of items for sale on there, some are by private sellers that are just looking for cash, some selling as a "personal" business and others are "small" businesses who find that Ebay has many advantages for them over owning their own site. If something just doesn't seem right then go with your gut, but like has been mentioned before, paying through Paypal also helps protect you. You can actually go thru Paypal if you buy something and get the wrong thing or just get hosed.
My advice is this:
If you have questions, ask. (If the seller is legit they will gladly answer your questions)
If it looks like one thing but the description is different and the seller's not talking, walk away. If it looks too good to be true, investigate and go with your gut.
WATCH THE SHIPPING!!! It's no bargain to buy an iPad for $99 and then get hosed with $500 for shipping.
Save any and ALL emails you sent and receive from seller's, never know when you might need the evidence.
If you don't get the item or you got the wrong item, or if you have an issue at all, FIRST contact the seller. If they are any good at all, they will do whatever they need to to fix the issue. Wait till you have exhausted all possible scenarios with the seller but don't be afraid to go to Ebay and Paypal to resolve the issue if the seller is just being a dick.