It occurs when voltage between conductors rises high enough that the air insulation between them suddenly breaks down and becomes ionized (and therefore, electrically conductive). This instantly results in a low resistance conductive path through the air, followed by a large increase in electrical current. The result is an instant, bright flash. Arc flashes are initiated by excessive voltage, but the arc, once initiated, is sustained not by high voltage, but by the resulting high current.
Arc flashes can occur directly through the air that lies between high voltage conductors, or even across the surface of an insulator that separates two conductors.