Hi Saket,
With a arbitrary file upload vulnerability you can do couple of things:
1. Remote Code Execution
2. File Hosting Server.
If you are interested for RCE, you need to make sure:
1. You are able to upload the file in a format that ensure the file can be actually executed, uploading a PHP script by renaming as a ZIP doesn't make any sense unless the ZIP is a defined as a CGI handler, or in other words ZIP is not "associated" with the PHP to be executed.
2. The directory where you are able to upload the file must have execute permissions for the current user/group or at least you are able to move it to a directory that meets the requirements, often not the case.
3. You must be able to predict the exact path of the file you just uploaded.
Now remote file inclusion is you dont need anything to upload, the malicious script remains on your server and from the above you dont need point. 2 and 3 to be true. If you are wondering how this possible watch this real world video that I created about 1 year ago. The issue has been fixed for more than 1 year now. The link is here:
https://www.dropbox.com/s/m6apc4yooar5rdg/dominos-remote-code-exec.mov?dl=0
Thanks
Nishant