Take your arm and point it straight out to your side level with your shoulder. Bend your elbow 90 degrees so that your arm is still level with your shoulder, your hand is palm down facing forward and you upper arm is still pointing out to your side. Now rotate your arm 180 degrees so that your hand is pointing back, palm facing up, arm level with your shoulder and the upper arm still pointing out to your side. At this point your forearm would be laid back.
When a pitchers forearm can lay back to parallel like this they get a bit more leverage with which to throw the ball. Pitchers who aren't flexible enough to do this will sometimes compensate by cocking their hand toward their ear, although there are other reasons why some pitchers do that.
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