Maximum PC

on a 120 mm fan there is three wires, what does the third one do?

hot
ground
what else?

RPM

Ya the third one is for controlling the fan with a fan controller. For example I have a AEROGATE II.

...and?

The AeroGate II...for example...willl control 2-wire fans too through it's magical powers. It just won't display their speed without that 3rd wire. Man, it sucks that they don't include the tape for the thermal sensors don't it?? I have no idea why they do that.

That 3rd wire does not control anything. It's feedback from the fan's sensor to tell your motherboard or readout device how fast it's going. It picks up a pulse and sends it back to decode into digits. In order to control a fan you adjust the voltages going to it. Most motherboards out now have 3-pin headers on them to support this feedback. If you look in yor BIOS under PC Health, you can see the RPM. This is also where software like MotherBoard Monitor or Sandra tell the fans' speed.

Intel's new OEM HS's have a 4-wire fan that controls it. I think that's just because it's too much to have a motherboard control the fan speed through the normal means, so they just tacked on the fourth wire to do this.
Intel Integration Sheet
"The speed of the new fan heatsink is controlled by the additional 4th wire of the fan cable. (The new technology is sometimes referred to as “4-wire fan speed control.”)

The additional 4th wire sends a signal from the motherboard to the fan heatsink to control its speed. There is a thermal diode in the processor which measures actual CPU temperature. The processor sends information to the motherboard about its specific thermal requirements and the actual processor temperature. The motherboard then uses this information to optimally control the speed of the processor fan."