Yes I don't understand the VAT refund thing either. But since other countries have similar schemes I believe. I think you can reclaim sales tax when purchasing items in the USA, for example? It's that because you're meant to pay local taxes when bringing them into your home country?
Yes, if you buy stuff abroad and bring it back you’re technically importing it and are thus liable to pay Customs Duty, Excise Duty, and VAT on the purchase. Getting the foreign tax back avoids being taxed on an item twice, once by each country.