No ways to arrange ABC by using C(3,2) is AB BC AC . Not BA CB OR CA including.
When we solve $(a+b)^2$
a^2 + b^2 + 2ab
Is it that no ways to arrange for the 3rd term since it would be C(2,1) . it is no ways to arrange them would be ab or ba. How do we write this here then?

Okay, I see what your book is getting at.
${3\choose 2}$ is the coefficient of $ab^2$. That is one $a$ and two $b$s. So you need the number of ways to arrange $a,b,b$. They are not three different things.
There are three ways to do it. they are 1) $a,b,b$ and 2) $b,a,b$ and 3) $b,b,a$.
There are two ways to think of ${3\choose 2}$. It can be thought of as the number of ways to pick two items out of three different items. (That's how I think of it and that is why the operation is call "$3$ CHOOSE $2$). But you book is thinking of it as: how many ways are there to arrange two different types of items if you have $2$ of one type, and the remaining out of $3$ items are all the second type.
Those two ways of thinking are equivalent because if you think of it the second way, all you are really doing is choosing $2$ out of three positions to place the first type of item.
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${3 \choose 2}$ is not the number of ways to arrange $A,B,C$.
${3\choose 2}$ is the number of ways to choose two elements from $A,B,C$. And the three ways are: 1) The two elements you choose are $A, B$. 2) the two things you choose are $A,C$ or 3) the two things you choose are $B,C$. Notice that choosing $A$ and $B$ are the exact same two things as choosing $B$ and $A$....
The number of ways to arrange $A,B,C$ are $3!=6$. The six ways to arrange are i)$ABC$, ii) $ACB$, iii) $BAC$, iv) $BCA$, v) $CAB$, vi) $CBA$. The number of ways to choose two items is a completely different question.
${2\choose 1}=2$ is the number of ways to choose ONE item from two. So the number of ways to choose one item from $A,B$ are two ways, 1) You can choose $A$, or 2) You can choose $B$. Those are the only two ways to choose one item from $A,B$.
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The binomial Thereom states if you expand out $(a + b)^k$ you will get a sum with $k+1$ terms and the coefficient the $j$th term will be ${k\choose j-1}$.
So the three terms when you expand $(a+b)^2$ will be $a^2 + 2ab + b^2$ (note the order of the coefficients). The first coefficient of the $a^2$ term will be ${2\choose 0} = 1$. There is one way to choose $0$ items from $2$ items that one way is to choose no items.
The second coefficient of the $ab$ term will be ${2\choose 1} = 2$. There are $2$ ways to choose one item from $2$ items. (You can chose one... or the other).
And the third coefficient of the $b^2$ term will be ${2\choose 2} = 1$. There is $1$ way to choose two items from $2$ items. That one and only way is to choose both the items.
So if we expand $(a+b)^2$ we get $(a+b)^2 = {2\choose 0}a^2 + {2\choose 1}ab + {2\choose 2}b^2 = 1\cdot a^2 + 2\cdot ab + 1\cdot b^2 = a^2 + 2ab +b^2$.
And if we expand $(a+b)^3$ we get $(a+b)^3 = {3\choose 0}a^3 + {3\choose 1}a^2b + {3\choose 2}ab^2 + {3\choose 3}b^3 = 1a^3 + 3a^2b + 3ab^2 + 1b^3 = a^3 + 3a^2b + 3ab^2 + b^3$.
Do you see why ${3\choose 0} = 1$? The only $1$ way to choose zero items is not to choose any.
Do you see why ${3\choose 1} =3$. The $3$ ways to choose one item, is to choose one item, and there are three to choose from.
Do you see why ${3\choose 2} =3$? There are three pairs we can choose.
Do you see why ${3\choose 3} =1$? The $1$ way to choose three items is to choose all of them.