I would appreciate an example and explanation of exaclty how the arc filter and tolerances works in mastercam.
The arc filter attempts to utilize an arc rather than a series of XY moves. This is controlled by the tolerance. If you have the tolerance set to .002", then if a single arc move would keep the cutter path within .002" of the original path, it is used instead. This can GREATLY reduce the size of the generated G code, as well as give a smoother, non-faceted cut.