To sign arm, hold your non-dominant arm straight in front of you, angled slightly downward. Then with your dominant hand formed in the ASL 'B' sign (open, flat hand, fingers held together, thumb tucked in), reference the opposite arm from the top of the shoulder down to the wrist.
Teach your child the arm sign in context: when you are teaching the body parts to your toddler, or when you are instructing them to lift their arms to get dressed, and so on.
Teach your toddler this sign along with the other body parts when they are ready. It is good to complement the body parts flash cards with nursery rhymes, like "Head, Shoulders, Knees and Toes".