Buying A HUD home??????????

I got preapproved for a house, and HUD accepted my offer on a home I put a bid on. I am going FHA 203b but the home needs some work. According to the appraisal, it needs 1200 in it. They mention something about a repair escrow with 1200. I don't understand because my loan rep told me the underwriter might disapprove because of some of the issues of the home like missing light fixtures, missing sink in half bath and some damaged shingles. The carpet is also dirty (like that matters to me, these are all cosmetic issues). But I don't understand the repair escrow and whats it about. My realtor doesn't seem to know either. Do I pay that? Does HUD pay it? Also since the house needs under 5000 of work, it is fha insured? No one around me has any answers. I am a first time home buyer so any info will help. Thanks