Here's how it works:
1. Go to the arena on the western edge of the map.
2. Pick your fighter; set any other nearby squaddies to ignore the fight (passive, hold, turn off jobs & healing).
3. Select an opponent & initiate combat via dialogue.
4. Fight! If you are defeated, your opponent may attempt to kill any of your squad members who attempt a rescue. It's best not to pick fights with someone you cannot defeat.
5. Rinse & repeat.

Available opponents, from weakest to strongest are:
Novice, Soldier, Lieutenant, Berserker, Knight, Champion, Master.


UPDATES:

A new character (GG Palm Greaser) was added to prevent any issues caused by large changes to the Grimshade Gladiators faction relations. Visit them in the bar to raise or lower your relations at any time.

The arena bar vendor now sells robotic limbs (lots of limbs getting chopped off there).

Round 1 of re-balancing is complete. Opponent levels are still on a sliding scale, but fight difficulty is a bit more predictable. Gear has been adjusted.