Quarterbore basicly got it right, but let me clarify and correct some of his statements.
Form 3 - a tax free transfer, only used to transfer a NFA weapon between two C3 dealers
Form 4 - a taxed transfer ($5 or $200 depending on weapon type), used to transfer an NFA weapon between an individual and a C3 dealer. It works either way; dealer to individual or individual to dealer.
A C3 dealer can buy an NFA weapon from an individual in any state (use a form 4).
A C3 dealer can only sell an NFA weapon to an individual in the dealers state, or to another C3 dealer in any state. If its to another dealer its usualy on a form 3, unless the dealer owns the weapon in his personal inventory on a form 4. If the dealer sells to an individual in the same state as the dealer, its on a form 4.
An individual can buy an NFA weapon directly from an individual in his home state (on a form 4), or from a dealer in his home state (also on a form 4).
An individual can buy an NFA weapon from a dealer in another state, but it has to transfer through a C3 dealer in the individual's home state.
An individual can buy an NFA weapon from another individual in another state, but it has to be transfered through a dealer in the buyer's state (no need to use a dealer in the seller's state).