There's a wide variety of strategies available. The type you mention of picking up small inefficiencies certainly exists but there are plenty of other strategies that involve having some sort of informational edge. Some hedge fund managers just read a lot of earnings releases, but there are also more sophisticated approaches: a famous example would be the fund that paid for satellite imagery of the parking lots of certain shops, so that they could count how many cars there were and extrapolate that into whether the chain was growing or not.

Another straightforward example would involve using proprietary weather forecasting software to try and predict the global grain/cocoa/coffee/whatever harvest, so that you can then trade accordingly if you can see a bumper crop coming up.