For a basic comparison of Custom and Adaptive tests, see Selecting a Test Type.
When you create an Adaptive test, seven mini-tests are created behind the scenes.
The first mini-test has the questions all students assigned to the test will sit. When students have completed the first stage, this mini-test will be scored. Depending on how they score, the students will be allocated to either the easy, medium or difficult mini-test in the second stage.
A similar thing happens in the second stage. The aim is to present each student will receive questions most appropriate to their ability.
A common misconception about e-asTTle Adaptive tests is that no matter where you set the curriculum levels, the test will adapt from levels 2-6. This is not the case. The levels you select dictate the lower and upper limits of the test. Within those levels, e-asTTle will attempt to present the student with questions most appropriate to them. This means that you need to carefully choose the levels you use in an adaptive test. Most of the time you will need to use at least two levels. In addition, you may need to create more than one adaptive test where there is a range of student abilities.