Does anyone know what Web 2 is? I have seen some articles mentioning it in passing and wanted to know what it was and how it may impact my web business - any help would be appreciated.

According to wikipedia the phrase "Web 2.0" is one or more of the following:

• The transition of Web sites from isolated information silos to sources of content and functionality, thus becoming computing platforms serving web applications to end-users
• A social phenomenon embracing an approach to generating and distributing Web content itself, characterized by open communication, decentralization of authority, freedom to share and re-use, and "the market as a conversation"
• Enhanced organization and categorization of content, emphasizing deeplinking

I have heard of Myspace being an example of Web 2 because of the social interaction I am not sure that is true. I am not sure I agree with the concept anyways that there is a clear demarkation between 1 & 2.

This should be an interesting transition it appears like Web 2 will be more engaging than web 1

If some sites are already Web 2 has anyone heard of the term Web 3 and what the industry will look like at that time?

As a matter of fact, yes.
In the tech circles I'm in contact with, "Web 3.0" is being used to describe wider use of semantic technology- something not very possible years ago and only just starting to be now. I'm sure wikipedia has a section on semantic technology, and I wouldn't be surprised if they already had a definition of "Web 3.0" that specifically mentions semantic web technology.

Business Start Up - Start Your Own Business has an article that discusses how to build your biz in a Web 2.0 world.