There are various tiers are used in D365 F&O but each tier has its own purpose. First you have to know, the purpose of the environment. In this blog I'll be summarizing this for you.
Tier 1 and 2 depends on how you would like to do your implementation. If you want to use an environment you want to manage for security purposes, you use Tier 1 but in this case, you should know that you may not be able to use some functionalities like Warehouse mobile apps etc.
Tier 1: VHD , Customer Managed Environments, Development Environments
Tier 2: Microsoft Managed standard offer environments, UAT, Integration, Testing Environment,Golden Config, Pre Production
Tier 3: Microsoft Managed additional environments, UAT, Integration, Testing Environment
Tier 4: Microsoft Managed additional environments, Performance Testing
Tier 5: Microsoft Managed additional environments, Performance Testing
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