As NeoStrider said, you need a bend in your geometry at the elbow to get it to bend properly. Your arm looks like it is modeled straight, so I'm assuming your bones are straight, as well. Add a slight bend at the elbow, and you should be fine. Also, you can add a constraint control to the elbow so it bends more naturally. That way, you can move the arm, and have better control over where your elbow is pointing.