Three-way compare shows the differences between three different resources in the workbench or three versions of a resource.
This feature is most useful when merging resources or when there is a conflict during synchronization. When such a situation arises, you will be able to view the differences between three resource versions: the resource in the workbench, the version of the resource that is released in the stream, and the common ancestor, from which the two conflicting versions are based.
The differences you will see highlighted are what has been changed in the workbench resource as compared to the common ancestor, and what has been changed in the stream resource as compared to the common ancestor.