Don't worry, it's not a stupid question.
Quite simply, a two-head machine consists of an erase head and a rec/playback head. When the erase head is engaged, sounds are recorded on the tracks that are "armed" or record-ready.
A three-head machine works similarly, but there are some difference. The first head is an erase head, the second is a record head, and the last head is a playback head. This is the typical setup for a two track machine. A larger multitrack will generally have a record/playback head (the second head) and/or the third head will back playback/record. This is in order to successfully record overdubs.
For instance, you generally can't record overdubs on a two track, mixdown deck.
Three head machine are generally more expensive, but they can have certain advantages, particularly when mixing down. In a mixdown scenario, you can have all three heads engaged at the same time. For instance:
The erase and record heads are engaged, which records music onto the tape. The third head, the playback head, can also be engaged as the same time, allowing the user to hear what is being recorded, from the actual tape, to hear exactly how everything will sound later. In this way, the user can monitor how the tape changes the EQ, how hard he or she is hitting the tape for any compression or distortion artifacts, etc. In doing so, there is a slight delay, depending upon the distance between the record and playback head, as well as the tape speed.
From my own, personal experience, having a two-head multitrack deck is sufficient, because I'm generally operating the machine while recording myself or my band. If I were recording another band (which I generally don't do), then a three head multitracker might be usefull for quick checks on what I'm recording from the tape itself. However, a three-head mixdown deck is a great asset, because the user can hear EXACTLY how his or her mix is going to sound while mixing it.
-MD
