Underneath "matched betting" sits a method that takes two bets. Matched betting turns a book's free bet offer into a small, mostly predictable sum. The bettor backs an outcome with the book and lays the same outcome on a betting exchange, so that whichever result comes in, one side covers the other. The profit comes from the offer itself, which is why the method depends entirely on the promotions books choose to run and on following each step with care.
Is matched betting legal? It uses ordinary bets and ordinary offers, so it is legal wherever betting is, and the offer terms are the only rules in play. Books do not welcome it, though, and many watch for it. An account that only ever takes offers and never bets otherwise is often restricted from future promotions, and that restriction is what ends most matched betting runs well before the offers themselves run out.
Arbitrage betting vs matched betting comes down to where the gain comes from. Arbitrage exploits price gaps between books and needs no offer at all, only speed, spare funds and many accounts. Matched betting needs no gap, since the free bet carries the value, and it works at quite ordinary prices. Both end the same way: once a book sees a pattern of one sided wins, the account gets limited.
For a patient bettor with spare time it yields a modest sum per offer, so the hours of admin should be weighed against that sum.
The exchange side is no longer covered, so the lay can win or lose on its own and a planned small gain becomes a real loss.
A note of every offer and every back and lay pair, so each step can be checked and mistakes are caught before they repeat.
A free bet does not return its stake when it wins, so a smaller lay balances the two sides and locks in most of its value.