Could you please explain this for someone not familiar with the US tax rules and forms/numbers?

In old days when cash was king, many small businesses used to under report income. Then came credit/debit cards, which require of businesses to sign up with credit card processing companies, who take the fees out and reimburse monies to your bank account.

Since old habits die hard, these small businesses used to under report income despite the trail of evidence left by credit card processors. So, IRS came in and imposed a rule on these processors: send us a copy of payments paid to Mr Small Business X--and that copy is called 1099-K. This is like W2, 1099-MISC, 1099-INT.

Basically, the tax man wants records from the third parties, since self-reported ones are mostly under reported.

All processors ( FDC, Worldpay, Global Payments etc) are required to report credit card sales for each of their customers through 1099 reporting , This reporting is done on what is called a MID ( Merchant Identification)number. Every merchant accepting credit cards has one ( sometimes multiple)

Some processors charge merchants for this reporting services to the IRS which further drives up Merchant Services cost.