Hi Jccraford,
Have a look at the official documentation from Microsoft: docs.microsoft.com/.../layers
I do have a slight different opinion on the comments from Nikoloas.
ISV is used if you want to have the solution available on AppSource and sell products to your own customers, but also via a partner channel.
VAR is for partners creating specific solutions for customers.
CUS is the layer used by the customer to create his own modifications for the organization.
USR was specified for user requirements.
If you read the documentation, then the layers do have a priority. Even when every customization is an extension, then there are still situations where partners and ISV solutions can extend the same object. A higher layer would have still higher priority in execution.
Also when two ISV products use the same inventory dimension out of the 10 additional, then it can be changed in a higher layer by a partner as part of the implementation.