When the source is +5V, and the PWM pin is HIGH, no electricity will flow even if the +5V is capable of higher current than the pin, correct?
Yes if there is no voltage difference then there is no current flow.
Also, how much current can an arduino pin safely sink? I know the pins can source 40ma, but didnt see a value for sink.
You can sink 60mA at 25C and get down to a voltage of 1.5v.
That means sinking current you will not get the full 5v across the load but 5 - 1.5 = 3.5v
Sinking 40mA gets you down to under 1V on the output where as 20mA gets the output voltage down to 0.5v