Layer 2 is also known as Data link Layer. It is the second level in the seven layer model for network protocol. Layer 2 is equivalent to link layer in the TCP/IP network model. Layer2 is the network layer used to transfer data between adjacent network nodes in a wide area network (WAN) or between nodes on the same local area network (LAN). Network interface cards (NICs), hubs, bridges and switches are included in Layer 2. Each network interface card has unique MAC address which cannot be changed. Layer 2 networks forward all traffic viz. ARP and DHCP broadcasts. Anything transmitted by one device is forwarded to all devices. When the network gets large enough, the broadcast traffic begins to create congestion and decreases network efficiency and this may result into network outage as well.
Layer 3 is also known as network layer. It is the third level in the seven layer OSI model. The network layer provides the functional and procedural means of transferring variable length data sequences from a source to a destination host via one or more networks, while maintaining the quality of service functions. Layer 3 devices restrict broadcast traffic such as ARP and DHCP broadcasts to the local network. This reduces overall traffic levels by allowing administrators to split networks into smaller parts and restrict broadcasts to only that sub-network.