@fantasybooks - great question, I've wondered that for years and can't wait for someone who knows for sure to answer.

I always thought the difference was that 3D meant it was mostly created in a 3D rendering program (DAZ Studio, Poser, Blender, etc...) and 2D meant it was mostly done in either a traditional two-dimensional medium (paint, pen and ink, etc.) or a digital version of one of those (painted in Photoshop, Krita, etc.). That's just my personal interpretation though and if you look at past contests it mostly seems to be true, but sometimes there are obvious 3D renders in the 2D category, so that doesn't seem to be an absolute rule. I still use that as my own rule for entries though. I personally would not enter a render in the 2D contest unless I had pretty much completely painted over it.

I think it is a matter of "what medium was most of the work done in." Just my guess though since no real guidelines have ever been posted that I can find.