In MSDN documentation, many .NET classes methods (like ArrayList ) mentioned that "Supported by the .NET Compact Framework".
How internally it has been modified so that it has been supported by .NET compact Framework? I assumed all the .NET Base class library can be used on .NET compact Framework.
No, the CF is a subset of the .NET framework so this wording simply indicates that the type in question is part of the CF. The CF does not include every type - only those that make sense for its purposes. ArrayList is one such type that was included in the CF and is the exact same type as what you are used to working with.