Either size can support stereo sound and/or a microphone, depending on the number of separate connector rings on the plug and jack. 2.5mm refers to the approximate diameter of the connector.

Using a female 2.5 mm stereo inline jack [octanechicken] was able to get the Xbox One headset controller to work with older Xbox 360 chat headsets having a male 2.5 mm plug. The photos on the ...

It can support stereo and/or microphone, depending on the number of separate connector rings on the jack. Some phones offer only a 2.5 mm jack, which is a smaller variety of the same principle.