The third person limited narrator does not know all in the story, which can make for dramatic irony. By that I mean that the reader might have insight into the situation or characters that the narrator does not have. I am sure you have watched a movie in which you wanted to yell to a character, "Look behind you! He has an axe!"
With the third person limited narration, we have some unknown person "looking down," but this person cannot see everything going on or peer into the minds of all the characters. Whether the narrator acknowledges it or not, he or she has a particular perspective, one which can be used to influence how the reader makes meaning of the story. What a narrator leaves out can be as important in shaping a story as what such a narrator includes.
A third person omniscient narrator affords a greater sweep in a story. This is particularly effective when one wants to know what people are thinking, not just what they are doing in the story. This point of view is also useful when a story takes place over a great period of time or in many places. One person telling the story makes for far smoother transitions for the reader.
Let’s backtrack a bit. A story told in first person is narrated by one character; or perhaps by a series of characters in separate chapters. The person uses the word “I” and talks to us as if we are at least acquaintances, if not outright friends. As a result, we readers see events develop only as the character sees them. We get his/her personal thoughts and reactions, too. The book Three Men in a Boat is told by a first-person narrator known only as “J.” Most of the book The Help alternates chapters among three characters who tell their versions of the story: Aibileen, Minny, and Miss Skeeter.
The point of view of third person is from a source outside the character. It’s as if our view is from a movie camera pulled back far enough to see a wider picture, and not just what is happening around one character. The narration uses “he,” “she,” and “they” to describe what the characters are doing. In third person limited, the camera focuses on one specific character. We follow this person’s actions, and we learn his/her thoughts on events. But we also have the benefit of seeing a few things the character doesn’t. In third person omniscient, the camera pulls back even farther to reveal the whole picture. We have the benefit of the ability to follow one character after another, wherever the action leads us. We are shown everything the author allows us to see from this view.
Sometimes a book or story will alternate these point of view approaches for effect. Here are two examples. While The Help alternates chapters among the three main characters for most of its narration, Chapter 25, “The Benefit,” is the only one that breaks this pattern. It is told in third person omniscient. All three of our characters attend this huge Junior League Benefit dinner. We can see the whole picture of what happens on this crucial night, instead of from the perspective of one of the participants. The first-person chapters that follow show what the fallouts were for each woman.
The structure of Whirligig by Paul Fleischman is a bit more complex. Here the chapters alternate between Brent Bishop’s story and those of the people who encounter his work. Brent’s chapters (1, 3, 5, 7, 9, with named titles) are told in third person limited point of view. We follow Brent to the party, through the accident’s results, and on his trips around the country. The geographically-named chapters (2, 4, 6, 8) are told in first person by someone who finds one of his whirligigs. While this combination may have been a complex plan to deal with from the author’s side, we readers benefit by knowing a great deal more than we would have if the whole book had been told in first person, third person limited, or even third person omniscient. It comes down to the choice of the author.