yeah, ARC = audio return channel
so it returns down a line that's normally going the other way. It plugs into the main output of your audio device
as far as the volume, ARC doesn't send volume commands, it just sends a full volume digital signal.
if your TV remote is controlling the volume on the blu-ray, then it's either HDMI-CEC, or your TV remote is sending the IR commands that the LG is receiving.
My guess would be IR, and somehow, only the volume up is programmed correctly.
the appleTV is fairly smart in figuring this out. it gets all the model numbers of the connected TV and audio devices over HDMI, from the menu on the aTV, you can then select if you want to control via HDMI-CEC, or to send IR commands to the TV or stereo. the codes are downloaded from the internet, and automatically loaded into the aTV remote.
i use HDMI-CEC and i have to use the Television remote to choose between the TV and stereo speakers, the appleTV remote volume then controls whatever is chosen in the television menu.
go into the devices menu on the appleTV, and see what you can find in settings there.
HDMI-CEC will also let your TV remote control the aTV, once you're watching the aTV, the arrow, select, and back keys should work.