Water damage falls into 3 categories of losses: Category 1, Category 2 and Category 3.
The easiest way to think about it is by how contaminated the water is.
A Category 1 water loss is clean water that originates from a sanitary source and does not pose a significant risk of sickness. An example of this would be if the supply line to your dishwasher was leaking or broke. When these losses happen the good news is that most of your building materials in your home can be dried if addressed quickly and done right.
A Category 2 water loss is when the water is significantly contaminated and poses a risk of sickness or discomfort. An example of this would be an overflow from your washing machine or dishwasher, but unlike a Category 1 this water has detergents and or soils from clothes or dishes. When these losses happen the determination of what is salvageable depends on the type of material.
A Category 3 water loss is when the water is grossly contaminated and could pose significant risk to those with compromised immune systems (e.g. young children, elderly persons, persons with respiratory problems, those who have undergone recent surgery or chemotherapy, and those whose immune systems are suppressed). When these losses happen all materials that have been affected by the water should come out (e.g. carpeting & padding, tiles, vinyl flooring, baseboards, sheetrock and many others).
One of the biggest factors in all this is time. Time allows for water damage to get worse. Catch it early and dry it properly and you can really limit the damage done to your home. The goal is to quickly and safely dry your home with the least amount of damage as possible.