Escrow helps ensure the buyer gets the domain and the seller gets paid. That's all.
Escrow will NOT protect against "stolen" nor disputed domains.
EDIT: On an aside, similar is true with physical real estate - that's why most buyers (and most all mortgage lenders require it) pay for a title search to research past history of the property along with title insurance to financially cover a future claim regarding property ownership; outright stolen, other owners, deed irregularities, boundary disputes, etc.
It's always important to research the seller and the domain itself.
There have been numerous instances (search messages on NP using keywords "stolen" and "escrow" for details) of people losing domains, despite purchasing them sucessfully, due to it being "stolen", TM dispute, etc.
Transferring the domain to another registrar upon purchase may help, but technically the "losing" registrar, for gTLDs, has priority and can request the domain be returned for various reasons, in particular, based on a claim it was "stolen" - most registrars will comply and transfer back...
On an aside, upon transfer back, the "buyer" is no longer a customer, in respect to that particular domain, of the gaining registrar and was never a customer of the losing registrar - in essence, the "buyer" has no standing and thus both gaining and losing registrars will often ignore the buyer's pleas completely from there on.
The buyer still has recourse against the seller, but if the buyer didn't research the seller and/or the seller is in some far-flung jurisdiction, the buyer probably be out of luck with nothing.
Ron
