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The arrow is where you started your current reading session, i.e. how far you were when you opened the book you are now reading.
The progress bar is where have now progressed to so far since then -- so you can see at a glance just how much you have read this session since you started.
Where this nice idea can be a bit flakey (at least on my K3) is that something as simple as a dictionary check or the screensaver kicking in can confuse the Kindle into forgetting where you started the current reading session, 'resetting' the arrow to your current reading position. I had hoped the latest 3.1 firmware would have fixed this, but no such luck for those of us anal enough to care about such trivia....
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