Stage 1 is the install stage where you configure just about everything on the kernel and everything else. It takes a reeaaalllllllyy long time to complete installation and would avoid it if you're new to Linux.
Stage 2 is what I used when I compiled Gentoo and there's less configuration by you which means less customization and control over your system but less time to complete.
Stage 3 is pretty much preconfigured you just answer a few qeustions and a little while later you have a working (hopefully!) system.
for better explanations, go to the Gentoo site and read their docs. use the power of Google my son...