These come in a variety of combinations.
The number of positions is the number of possible combinations you can
select among. Depending on what you are wiring, the number of poles
is the number of things which can be attached. This isn't true, strictly
speaking. The 5-way pickup selector on a Fender Strat is a 5 position,
2 pole switch, but you can hook 3 pickups to it, although they are all
connected in parallel and in phase with one another. However, to
achieve the maximum number of possible combinations, you really need more
poles (at least equal to the number of coils on the guitar) or you have
to include other switches to accomplish what you can't using the rotary
alone. More specific possibilities elsewhere
on this site.
Incidentally, although I describe their
application here for switching between pickups, simpler rotary switches
may also be employed for mods such as the varitone.
A mod for this mod: I found many
rotary switches to be difficult to turn, but this can be corrected by applying
a Dremel to the "bumps" to make it easier to switch between positions.
Just something to consider.