Amanda, it refers to the strength of the transmission.
In the auto transmissions it's the different shift kits.
In the manual transmissions it's actually the clutch, that is, different grades of clutch.
Look at it this way, stage one is your truck from the factory,,
Stage 2 is for performance, a corvette street racing, or medium weight towing.
Stage 3 is for heavy duty towing, or 1/4 mile racing