When it stands +1 soak 5 damage does that mean that it reduces all damage of 5? and the +1 is AC? Or is it just melee dmg reduced? (blunt dmg?), or does it reduce arrows? (ranged attacks also?).

Soak is a resistance to physical damage. That is, from Blunt, Piercing and Slashing attacks.
In "+1 soak 5", the 5 means that the first 5 points of damage from any such attack are absorbed and won't be subtracted from your hitpoints.
The +1 means that the Soak does not apply to any attack made with a weapon of +1 or better enchantment.

For example, a Soak 40/+1 won't save you from a dragon's claws because they are +3 weapons and cut through the damage resistance, but creatures without powerful magic weapons almost can't scratch you. A Soak 10/+4 might not absorb all the damage from the hit, but at least it prevents some. With a soak 10/-, the - would mean that the Soak works against any physical attack regardless of the weapon's enchantment.