What is the algebraic difference between arithmetic operations, that prevents entities with different units from being summed or subtracted, but allows them to be multiplied or divided?
This looks more like a question for Physics, but lengths and areas, for example, are in the domain of pure mathematic.
Now, I cannot sum or subtract an area and a length, but I can multiply and divide an area with a length!
Reading Wikipedia, it looks like this is a property of the dimensions set. Does it just depend on the definition of the dimensions, or is it something intrinsic in the operations of add, subtract, multiply and divide?
Please explain with simple words, if possible.
I think you should look at this symbolically. The units are just unevaluated "dummy" variables that stay symbolic (because they represent a physical quantity they can't be given a numerical value). This is nothing special, we also like to keep $i$ and $\pi$ unevaluated even when they have a bit more mathematical properties defined than our units do.
When you are computing with units, you are leaving them unevaluated - both in summation and multiplication! Think about it:
$$3\text{orange}\times 4\text{apple}=12(\text{orange}\times \text{apple})$$
The multiplicative group that units belong to may define an alias for this particular product, but that's just a substitution rule (like joule=newton*meter). So, in essence, you are not multiplying oranges and apples, you are leaving the product unevaluated. The same goes for summation: $$3\text{orange}+4\text{apple}=3\text{orange}+4\text{apple}$$ It's just that you can't simplify into a product of value*unit. Because we expect final expressions to be in the form value*unit, we say we can't do that, but above expression by itself is mathematically valid (although physically nonsensical, because there is no physical quantity with units 3orange+4apple, or, 0.75orange+apple if you want).
The same goes for evaluating pure mathematical functions on values with units! For instance, $\sin(40\text{apple})$ is perfectly valid expression, but it's irreducible. It has to be left in this form, because there is no numerical value that we can substitute into $\text{apple}$. However, this is somewhat alleviated with logarithms. It's common in physics to get intermediate expressions of the form $$\log V_1-\log V_2=\beta t$$ or something along these lines. $\log (\rm m^3)$ of course doesn't have a numerical value, it's just an irreducible symbolic entity. However, logarithms have a nice property of converting product into summation, so the problematic symbolic entity cancels out (producing $\log\frac{V_1}{V_2}$ which is a pure function evaluated on a pure number).
As soon as a unit can evaluate to numerical value, the "problem" disappears. For instance, the degree is simply ${}^\circ=\frac{\pi}{180}$ and percent is $\%=\frac{1}{100}$ and radians are just $\text{rad}=1$, so you can write $\sin(45^\circ+50\%+2\text{rad}+5)$ and there are no problems with summation of different units whatsoever.
To sum up: units are quantities that by definition don't need to evaluate to numerical values (they are "handles" that point to the physical world). We treat the unevaluated product of value and unit as valid but not sums of mismatched units simply because the first can be reinterpreted back into the physical world, while the second usually have no reasonable meaning. Mathematically, there's no difference.