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v2 only allows for rebound adjustment. v3 allows for adjustment of both rebound and compression dampening. aside from allowing for better tuning for track setup (traction-wise) the difference in compression (high speed and low speed) allows for a very comfortable street setup. (this is my newB explanation) - I'm sure others will have more to say...
From KW's site re the v3s:
The new Variant 3 is state-of-the-art technology for the skilled and experienced driver. The separate and independent compression and rebound damping options allow a truly individual driving set-up. These unique systems with the 3 individually adjustable components, allows for adjustment of the compression of the damper in the low-speed range, while the highspeed set-up, so decisive for driving comfort, has been preset by our engineers
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