Under 3-D mode, the program propagates a 2-D field profile F(x,y) along the z-direction to create a 3-D (X,Y,Z) distribution.
When the 2D option is selected, a 1-D field profile F(x) is propagated along the z direction to create a 2-D distribution in the (X,Z) plane. These are essentially slices from the 3-D field distributions. Multiple slices can be specified, which means multiple 2-D distributions can be created corresponding to different Y positions. The slice positions are the Y distances specified in the Field/Index (X,Z) at Y = option. The 1-D inputs are taken by taking a line scan from the 2-D input profile at these Y distances.
Running a 2-D simulation prior to the 3-D is prudent in many respects. A 2-D simulation runs significantly faster than a 3-D simulation, so it can act as a preliminary check of the simulation. In some applications, a 2-D simulation may provide sufficient accuracy.