ConcurrentModificationException : This exception may be thrown by methods that have detected concurrent modification of an object when such modification is not permissible.<
I'm quoting a large section of the ArrayList Javadoc for your benefit. Relevant portions that explain the behavior you are seeing are highlighted.
Note that this implementation is not synchronized. If multiple threads access an ArrayList instance concurrently, and at least one of the threads modifies the list structurally, it must be synchronized externally. (A structural modification is any operation that adds or deletes one or more elements, or explicitly resizes the backing array; merely setting the value of an element is not a structural modification.) This is typically accomplished by synchronizing on some object that naturally encapsulates the list. If no such object exists, the list should be "wrapped" using the Collections.synchronizedList method. This is best done at creation time, to prevent accidental unsynchronized access to the list:
List list = Collections.synchronizedList(new ArrayList(...));
The iterators returned by this class's iterator and listIterator methods are fail-fast: if the list is structurally modified at any time after the iterator is created, in any way except through the iterator's own remove or add methods, the iterator will throw a ConcurrentModificationException. Thus, in the face of concurrent modification, the iterator fails quickly and cleanly, rather than risking arbitrary, non-deterministic behavior at an undetermined time in the future.
Note that the fail-fast behavior of an iterator cannot be guaranteed as it is, generally speaking, impossible to make any hard guarantees in the presence of unsynchronized concurrent modification. Fail-fast iterators throw ConcurrentModificationException on a best-effort basis. Therefore, it would be wrong to write a program that depended on this exception for its correctness: the fail-fast behavior of iterators should be used only to detect bugs.
ArrayLists will generally throw concurrent modification exceptions if you modify the list structurally while accessing it through its iterator (but even this is not an absolute guarantee). Note that in your example you are removing elements from the list directly, and you are not using an iterator.
If it tickles your fancy, you can also browse the implementation of ArrayList.remove, to get a better understanding of how it works.