There are several ways to think about the differences between two files.
One way to think of the differences is as a series of lines that were
deleted from, inserted in, or changed in one file to produce the other
file. diff compares two files line by line, finds groups of
lines that differ, and reports each group of differing lines. It can
report the differing lines in several formats, which have different
purposes.
GNU diff can show whether files are different without detailing
the differences. It also provides ways to suppress certain kinds of
differences that are not important to you. Most commonly, such
differences are changes in the amount of white space between words or
lines. diff also provides ways to suppress differences in
alphabetic case or in lines that match a regular expression that you
provide. These options can accumulate; for example, you can ignore
changes in both white space and alphabetic case.
Another way to think of the differences between two files is as a
sequence of pairs of characters that can be either identical or
different. cmp reports the differences between two files
character by character, instead of line by line. As a result, it is
more useful than diff for comparing binary files. For text
files, cmp is useful mainly when you want to know only whether
two files are identical.
To illustrate the effect that considering changes character by character
can have compared with considering them line by line, think of what
happens if a single newline character is added to the beginning of a
file. If that file is then compared with an otherwise identical file
that lacks the newline at the beginning, diff will report that a
blank line has been added to the file, while cmp will report that
almost every character of the two files differs.
diff3 normally compares three input files line by line, finds
groups of lines that differ, and reports each group of differing lines.
Its output is designed to make it easy to inspect two different sets of
changes to the same file.