Maybe I'm way off on this guess, but when I did my most recent net install of testing, it installed the 2.6.8-1-386 by default. A few weeks later I decided to go ahead and upgrade to a 686 kernel (Pentium III computer) and found ones called 2.6.8-1-686 and 2.6.8-2-686. I went ahead and installed the latter, but I wasn't sure what differences there were between the two. Now there's a 2.6.8-3 out (and possibly higher, but I've noticed that one). What differences are there between these different kernel versions since they are all "2.6.8"? The only thing I've been able to think of is that the different numbers have something to do with what is compiled in or something, but chances are that I'm completely wrong. Just wondering if anyone here knows, so that on my next kernel upgrade, I can hopefully pick the best one.

Well, 2.6.8 means the original kernel version. Debian compiles the same kernel version and packages it several times over the time, setting the options the way they think it's best to fit with Debian. That's where the "-1", "-2", etc. comes from. And "-686", "-386", "-k7", etc. represents the processors the kernel is optimized for.
Of course, the higher the numbers are, the newer the kernel package is. Just be careful to pick the one right for your processor.

Yeah, I knew about the 2.6.8 and -686 part, but it was that single number between the two that had me most confused. Is there any place where Debian outlines the differences between each version, or is it always safe to assume that the one with the highest number will be the one I want to upgrade to?

it is safe to assume the highest number is best.

if you haven't noticed, all debian packages have a -1, -2, -x. That's because the package maintainers fix bugs, and add patches to their packages. Whenever a change is made, the package has a new revision number (so kernel-image-2.6.5-1 would become kernel-image-2.6.5-2) you can see the changes that were made in the debian change log (/usr/share/doc/{package name}/changelog.debian.gz