A Format 0 file (Midi 0) contains a single track and represents
a single song performance. Format 1 (Midi 1) may contain any number
of tracks, enabling preservation of the sequencer track structure,
and also represents a single song performance. Format 2 (Midi 2)
may have any number of tracks, each representing a separate song
performance.
In general a MIDI file can contain 16 channels, which can each
contain one or more tracks.
For instance, drums are by default recorded using channel
10.
Now you can put all drumparts on one track, but you can also
make separate tracks for each drum instrument, like bassdrum,
snare, hi-hat, hi-tom, lo-tom, crash, etc. This might come in handy
if you want to edit the track later on.
Each of these drumtracks will be appointed to channel 10.
Now if you save this file to format midi1, all tracks will be
saved separately, although they are on the same channel.
If you save the same file to format midi0 however, all tracks
that are on the same channel will be merged into one single
track.
Midi2 is not a fileformat, but an extension to the GM standard,
and is actually called General MIDI 2.