I think Bitcoin can be serve as a money transport protocol and Escrow services can be built on top of it. Think about buiding HTTPS on top of HTTP protocol.
There different ways to implement escrow with bitcoin.
1) You could ignore all technicalities and simply send the coins to a third party which releases it back to you or forward to the merchant. That's probably the least recommendable way, but is the easiest to explain.
2) A smarter way to do it is to use bitcoins transaction script that can process multi signature transactions, which can work in a way that if A wants to send B money, he can setup an address that can only withdraw coins from if C also signs the transaction. This method is supported by Electrum and by the Blockchain.info wallet.
1) You could ignore all technicalities and simply send the coins to a third party which releases it back to you or forward to the merchant. That's probably the least recommendable way, but is the easiest to explain.
2) A smarter way to do it is to use bitcoins transaction script that can process multi signature transactions, which can work in a way that if A wants to send B money, he can setup an address that can only withdraw coins from if C also signs the transaction. This method is supported by Electrum and by the Blockchain.info wallet.