First of all, let's remember that RTDs are among the most precise temperature sensors.  However, if the distance between the sensor to the measuring equipment begins to increase, there are some issues to consider.
Temperature measurement in an RTD is accomplished by acquiring its resistance value. The are mostly used in applications that are looking for a solution where accuracy, repeatability, and stability are important.
So, all this is about measuring resistance and converting to temperature based on a table for the RTD in use.
A typical way that an electronic equipment does to measure resistance is to send a known current and then read the voltage drop across the element. Now with a simple relation Voltage/Current it calculates the Resistance. Consequently the desired Temperature using the RTD lookup table.
Here comes the problem.  The longer are the wires from the electronic equipment to the RTD, the higher will be the resistance introduced by the connecting wires.  Now the total resistance acquired by the equipment is not only from the RTD alone, but a value that includes the cable resistance too.  Consequently, this detected resistance does not correspond to the right temperature anymore.
From the example above, it is clear that we need a way to compensate for this added cable resistance. Here is where comes the options for 3 and 4 wires RTDs.
The 3 wires can practically eliminate the effect of the added resistance by the cables, and works very well in many case in industrial application.  However, bear in mind, the most accurate and stable solution to measure temperature with an RTD is using 4-wire connection.
Still, if the distances are small or the accuracy is not that critical, the 2-wire connection can suffice in may applications.
Good industrial transmitters, such as the SMAR TT300 series, have 4 terminals dedicated to the RTD installation.  In this way, we can connect the RTD in 2, 3, or 4-wires mode.
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