The first number: 7.x.x Speakers at ear level
The first number is the number of traditional speakers you have in your system. Typically this is the number of speakers at ear level.
2.0: A left and right speaker with no subwoofer
2.1: A left and right speaker with a subwoofer
3.1: A left and right speaker with center speaker and subwoofer
5.1: Same as 3.1 with 2 surround speakers. As shown in the green area above
7.1: Adds another two "rear surround" speakers with are situated behind your head
Note: Some older formats such as 11.1 used four height speakers, which would now be designated 7.1.4
The second number: x.1.x: Subwoofers
This number is simply the number of sub-woofers in the system. These handle all low frequency effects and in some systems bass that is otherwise directed to the main speakers. Adding more subwoofers significantly smooths out the in room response
This is the yellow zone in the image above
The third number: x.x 4
This is the number of "height" or "presence" speakers. These are speakers that are above ear level and add a 3D effect.
These are used for Dolby Atmos and DTS:X as well as in older systems as height, or presence speakers.
This is the green zone in the above image.