3D foam is an embroidery process where you place a piece of foam on top of the substrate and then stitch into the foam. The area that is under the stitching will raise off the material giving a 3D appearance. There are different thicknesses of 3D foam available to help achieve different results.
One misconception about 3D foam is the belief that the same file can be used for traditional embroidery as well as 3D foam. For 3D foam techniques to work properly, the digitizer must create the design in a manner that will cut the foam on all sides. This is accomplished through density manipulation and ensuring that all sides of an object have needle penetrations. The density adjustment for 3D foam can be twice that of regular density which means that a design utilizing a 3D foam effect will have higher stitch counts plus a higher cost due to the price of the foam. It is very important when doing any process to understand the costs involved and price accordingly.
Source: Ed Levy