I am by no means an expert but: One way would consist of one speaker playing all frequencies from signal source. Two way would be two speakers. Three way would be three. etc. Most of the time people don't consider a subwoofer adding to the "xxx-way", so someone may have a 2-way setup, but technically it's 3-way if you count the subwoofer. I'm guessing you can get better sound quality if you split the audio spectrum up and dish out each section to a speaker. example: if you have the hpf set too high for your subwoofer, it starts to sound bad, it's playing frequencies it's not designed for. So if you split the spectrum up, then you can dole it out to multiple speakers and each speaker can be designed to work well for that range. This is just my guess. Although I know if you have too many speakers then it's quite easy to destroy all imaging, and the sound will sound like it's coming from all over the place. With a component set or active setup, your free to position the speakers anywhere you see fit, anywhere that sounds best to you. passive / active Passive speakers are a set of speakers that come with an onboard/inline crossover network. ex: component sets. Active speakers use an adjustable crossover network whether it be on the amplifier, processor, or digital processor. With an active setup your able to tweak the crossover points, slopes, and likely EQ (if your setup allows for it) to make your speakers sound the best in their installation and location. An example of my "active" setup. I have 2 large format tweeters and 2 midbass/midrange drivers. This would be considered a 2-way setup. I'm using an ms8 that goes in between the headunit and amplifier. rca signal source goes from headunit to ms8, then gets split up to four rca channels (left tweeter, right tweeter, left midbass/midrange, right midbass/midrange), these four channels go to my 4channel amp (I don't use any settings on the amp except for gain). The ms8 comes with an lcd screen and remote, I'm able to plug in that I'm using two drivers per side, thus 4 channels. Then I can set the crossover points and slopes between the speakers. example: (ssf: 20hz 18db slope) SUBWOOFER SIGNAL (hpf: 70hz 18db slope) MIDBASS/MIDRANGE SIGNAL (lpf: 1200hz 18db slope) TWEETER SIGNAL Subwoofer will be playing from ~20hz - ~70hz (remember slopes are not cut off points, but attenuation) Midbass/Midrange driver ~70hz - ~1200hz Tweeter ~1200hz+