Arena matches are found within players with approximate morale value, not level. So if your morale value is high enough, the random selector will offer you opponents whose level is much higher than yours.
Sometimes the matchmaking system takes your castle's level into account as well, so that players with highlevel towns and low morale won't assault lowlevel towns.
To win in a battle Player must destroy enemy's Castle or 50% of all buildings. Each of these conditions will guarantee 1 star victory for Player. To achieve 2 stars Player must destroy enemy's Castle and 50% of all buildings. 3 stars are given for 100% destruction.
If your settlement was destroyed by another player, you are given a temporary protection from new attacks for 2/4/8 hours depending on the number of stars received in an attack on you. Also you can buy this protection with gems. It has a cooldown of 5x duration time, if you've bought protection for 1 week, you will not be able to buy it again in 5 weeks.
If the castle's levels are equal, you can steal up to 50% resources from windmills and mines and 30% resources from storages. For the each level of difference in castle's levels the player with the lesser level can steal more and vice versa.
The morale points you gain or lose in a battle depend on the amounts of morale - yours and your enemy's. If they are approximately equal, you will gain or lose 25 points. If you have more points and you win, you will gain less points, and vice versa.
If someone attack your town, you will find a battle report in your ingame Mailbox. You can avenge your offender using this report. Just hit "Revenge" button.
When you attack someone on the Arena, and they attack you back, that player becomes an avenger. So you can't take revenge on a player you have already attacked once.