One thing I don't understand is why the CC does charge a fee to the defrauded party. I mean, I'm not doubting this is what happens, but I don't understand why.

The merchant is in the best position to prevent fraud, so it makes sense that they bear the cost of fraud. You can't charge person who committed the fraud, because you don't know who they are (unless the merchant has video footage or something). Charging the cardholder is illegal. If the merchant bank bears the cost then they would just be redistributing the costs back to some other party and we would be back to square one.

I think that the credit card issuer is in the best position to prevent fraud, but they have the negotiation power to foist this expense on merchants.

That makes sense. But in the case of online transactions (where you can't ask for id), how can the seller prevent the fraud? It's there any due diligence expected? Or how can they send themselves? Is this just an example of "the cost of doing business"?