“Arm's length” is an expression which is commonly used to refer to transactions in which two or more unrelated and unaffiliated parties agree to do business, acting independently and in their self-interest.
I would think that most transactions are "arms length" transactions. I am not an attorney but I would think if an affidavit was filed stating that, it might be because the court asked for it or it is standard for that particular type of transaction. For example if there was a court appointed guardian for an elderly or incapacitated person and the court appointed a realtor to sell the house. That court appointed realtor might want or need to file the affidavit along with the sales contract and or the appraisal to show the judge/ court it was not an inside job , but rather an arms length transactions. Plenty of other circumstances where this might be needed....bankruptcy sales, tax valuation suits, probate disputes, sales in business breakups, Treasury department sales.
Hope that makes sense. Can you tell us more about the situation?