Every player has a form stat (ranging from 1-8, 8 being the 'best').
This form stat influences the type of arrow the player gets on matchday. If its green, his stats remain identical. If its pointing up or diagonally up (red/orange) then the player is in good form and his stats are increased. Vice versa for the arrow pointing down and diagonally down (purple and light blue): the players stats will be decreased.
This basically means that players like Adriano and the Brazilian Ronaldo, (who both have pretty good stats) will generally play much poorer then the stats suggest, as they have a low Form stat so the chance is big they get arrows pointing downwards. You will notice this when playing Master League or Online matches. In exhibition matches you can select the option to set the form of the entire team to the green arrow, meaning every player's stats are those you see on screen.
The exact increase/descrease in stats is uncertain, it's obviously a percentage drop though. I once saw this page though:
http://members.fortunecity.com/phelanigus/pes3_form2.gif
Its a chart with the percentage drop for each stats, so say you have shooting 100 if you have a arrow pointing down then in that match you'd have 91 instead.
Remove the pes3_form2.gif bit if you want to see the whole page with text explaining it. Mind you this is from PES3 so certain things have changed.