ARC stands for Affinity, Reality and Communication, the components of understanding (according to Hubbard).
These words have their regular English meanings, more or less. Affinity is the love or liking for something or someone, and is thought to involve the consideration of distance. In other words, the greatest affinity for something would involve occupying the same space as it. An example would be people hugging, seemingly trying to occupy the same space. Similarly, if you dislike something, you usually try to put more distance between it and you.
Reality is a matter of shared agreement. If two people see something in the same way, they are said to have a common reality. The word is also commonly used by Scientologists in this manner: "Sorry, that's not my reality at all," meaning that the speaker doesn't see things in the same way.
Communication involves the interchange of ideas, although it can be as basic as someone communicating with a wall by touching it and being aware of the touch, with no hidden exchange of ideas needing to occur for it to still be labelled as a communication.
A, R, and C are interrelated, and the term ARC Triangle is commonly found in Scientology. Increasing or decreasing one or two of these factors will tend to affect the remaining ones similarly. For example, if you talk to someone (Communication) about something real to both of you (Reality), you will tend to like each other more (Affinity