A GIS can represent features in more than two dimensions. Using the ArcGIS 3D Analyst extension, functional surfaces can be displayed in two-and-a-half dimensions (2.5D) and features can be rendered as objects with surfaces in space in three dimensions (3D). This adds perspective to the visualization capabilities of GIS.
The term 3D is widely misused. Many software applications today actually store and display data only in 2.5D. ArcGIS has the ability to work with both 2.5D and true 3D data.