Speed steps can be thought of as how many steps or notches there are between idle (stopped) and full throttle. Can be 14, 28, or 128 steps.
Speed steps can be thought of as how many notches there are between idle (stopped) and full speed. That is, as you turn the knob on your DCC throttle, how much control can you achieve. For example, if you had 4 speed steps (stopped, slow, medium, and full), you wouldn't have much fine control. In our example, you would turn the knob and the train would lurch to its slowest speed. The next step up, it lurches again to its medium speed, and then to full speed. This isn't very realistic, and doesn't allow for very fine control. Think of your lawnmower throttle compared to your car.
Most diesels have eight notches on the throttle. There may not be an increase in RPM when the throttle is moved from the idle stop to the first notch, but the locomotive can begin to move. Many sound decoders ignore that because the user expects that an increase in RPM will happen on the first notch.
Steam is a little different, because the engineer controls not only the throttle valve in the boiler, but also the valve action at the cylinders. It would be the same as being able to control the valve lift and duration in your car, to optimize the engine's operation under different loads and conditions. Opening the throttle only admits steam into the steam chest, adjusting the cutoff (value action) controls the amount, and duration, of steam admitted to the cylinder. Adjustments are always being made to maintain speed or power while economizing on steam (and fuel). Even when the engine is drifting downhill, some steam is still admitted to the cylinders to cool them and provide lubrication. The reverser, which controls the valve motion, can also shift the valves to provide forward or reverse operation.
While steam and diesels have different approaches to the same issue, the number of speed steps determines the level of control afforded, just as the engineer has various controls available to him which determine how the locomotive will react. The engineer does not want to melt the traction motors when starting a heavy train.
With DCC, there are three speed step choices: 14, 28, and 128. Lenz also had 27 and 55 speed steps that were a simulation of some kind - it isn't covered in the NMRA Standards and RPs. It's unclear if they still offer these odd speed steps now that they do 128 speed steps.
For more information see the page about DCC Packets.
Fourteen Speed Steps (Optional)
The 14 speed step is now optional.
It requires one byte to transmit, within that byte is also the status of the lights and direction of travel.
Twenty Eight Speed Steps (Mandatory)
The 28 speed steps also fit within one byte. This mode is required by the NMRA DCC Standards.
One Hundred and Twenty Eight Speed Steps (Optional)
This mode requires two bytes of data, unlike the other modes which use only one byte. One byte is the equivalent speed in 28 step mode, the other has the 128 step value.
The optional NMRA 128 speed step mode is available for both decoders and command stations that support it. Both the decoder and the command station controlling it must support this feature. A decoder switches to 128 speed step mode automatically at the track level when a it receives a 128 speed step command from the command station. The decoder will switch back to 14 or 28 speed step mode automatically when it receives a command in that speed command format. Unlike 14 and 28 speed step commands, the decoder does not need to pre-programmed to enable 128 speed step mode operation. It is always on, ready to be used at any time.
If a decoder capable of only 28 speed steps is on the layout, it will ignore the 128 mode and function at the 28 step mode.That is why the 28 step mode is often referred to as 28/128.
One Hundred and Twenty Eight Steps is Really One Hundred and Twenty Six Steps
The term "128 speed steps" is a bit of a misnomer. It should be called 126 speed step mode for consistency, much like the 14 and 28 speed steps are accurately called.
You would normally expect the maximum to be 127 since that is the largest value that can be encoded in the 7 bit binary field transmitted in a 128 step speed control packet. The lowest speed step (step 0) is Stop. The missing speed step (step 1) means Emergency Stop (i.e. Stop NOW and ignore deceleration settings). So, your command station's speed steps 1 to 126 actually correspond to 2 to 127 as encoded in the DCC packet. There are 254 valid steps available, half in either direction.
Some command control systems (previous to NMRA DCC) advertised forward and reverse speed steps combined - 128 speed steps would be 64 forward and 64 backward. But with DCC, when you're using the 128 speed step mode, you have 128 speed steps forward and 128 speed steps in reverse (for a total of 257 speeds - 256 moving speeds, and one stopped). 14 and 28 speed step modes work the same way.
Almost all systems now support 14, 28, and 128 speed steps - simultaneously. But don't assume, please check the DCC Systems comparison guide for more information. Some systems are still limited to 14 or 28 speed steps, not both at the same time. Some few manufacturers still make decoders that operate only in 28 speed step mode - for those, you may find it necessary to status edit the slot this locomotive uses in the command station.
Which is Better?
There have been discussions over the years as to whether 128 speed steps are necessary or not. The nay-sayers would always say, "the real ones don't have 128 speed steps". Just keep in mind, these are not real trains, these are just models. And like everything that gets scaled, all things can't be scaled exactly the same and still appear the same. With model railroad control, the smaller the scale the more speed steps you need to have good control. You also lack an exact replica of the control systems found on the prototypes.
It could be argued that those who disagreed had systems that lacked 128 speed steps capability. Being loyal to their system, those with non-128 speed step systems would argue that 128 speed steps weren't necessary. However, those that had systems capable of 128 speed step systems argued that it's the greatest thing since sl__(you get the idea).
As a general rule, the smaller the scale, the finer the control needed to achieve realistic switching and other operations. While 28 speed steps may be OK for G scale, 128 is certainly a whole lot better for HO and N scales. Of course, if all you want to do is turn your trains on and watch them go, any amount of speed steps is fine.