An L2TP tunnel represents a connection between two endpoints. Data is not carried directly over a tunnel, instead tunnels contain one or more L2TP sessions within which the data is carried.
Host-to-host communication parameters are configured on the tunnel context, such as whether authentication will be used, what encapsulation type to use (UDP or IP), idle and retry timeouts etc.
An L2TP session is created within the context of an existing tunnel. L2TPv2 allowed only PPP sessions, whereas L2TPv3 allows different layer 2 protocols to be encapsulated in a session. These different session types are known as 'psuedowires' because they emulate the wired connection which usually carries a layer 2 protocol. ProL2TP supports both PPP and Ethernet pseudowires, and both may be carried within the same tunnel.
LAC, LNS and LCCE
In L2TPv2 terminology, the L2TP Access Concentrator (LAC) originates a tunnel by sending a tunnel setup request to the L2TP Network Server (LNS). To restate in simpler terms, the LAC is the client and the LNS is the server. In L2TPv3 both LNS and LAC are L2TP Control Connection Endpoints (LCCE).