Engines need 2 things to run, air and fuel. Air contains roughly 21% oxygen. Oxygen and fuel are burnt as part of the combustion process and create power. The more oxygen you can get into your engine, the more fuel you can burn. So, in simple terms, more oxygen + more fuel = more power.
The first step of tuning your engine involves incresing the amount of air getting into the motor (induction), and helping the burnt gases escape freely (exhaust).
This is simply a box, usually made of plastic, which houses your air filter. One side is fed from the atmosphere and the other has a pipe going to the inlet of your engine. In most cases the filter sits in the middle so that the air is sucked through and filtered of any dirt or dust particles that may damage your engine.
Your OEM filter will usually be made of paper. These factory filters do a good job on the filtration front and they're cheap, allowing them to be replaced at each service interval. But paper filters are not as high flowing as cotton, foam or metal, nor are these paper filters washable. So the stock setup often restricts power.
DRILLED AIR BOX
This was a classic mod in the 80's and 90's. The simple, cheap and easy way of freeing up airflow to the intake of your engine is to drill the factory air box allowing more air to be sucked in. You just need to remove the stock air box and make holes using a drill or small hole cutter on the pre-filtered side of the box. The result should be a nice bit of induction roar and an air box thats less restrictive.
Beware of inviting hot air into the air supply.
PERFORMANCE PANEL FILTER
These babies are a direct replaceement for your stock filter, so you wont be able to notice any difference in the engine bay. They come in a variety of material types, the most common being cotton gauze and foam. Their design means that performance panel filters can flow more air than cheaper OEM filters and the foam or cotton gauze material is also washable. So, by fitting one of these filters to your ride, you should benefit by a small power gain and you'll be able to clean the filter regularly.
This is where it starts to get more serious. Induction kits are designed for maximum airflow and as a result give a really tough roar!
It's very important to get the right sized filter - go too small and you'll restrict airflow which could result in a power loss.
So it's best to buy a kit designed for your car.
Again, beware of inviting hot air into the system.
ENCLOSED INDUCTION KIT
Protecting your filter from engine heat is important. An enclosed induction kit is, well, enclosed. Basically these are similar to a regular induction kit, but the filter itself is housed in a protective casing usually made from carbon fibre, metal or plastic. These kits are designed to reduce the amount of heat soak from the engine. They're as easy to install as an induction kit and often make less noise due to they're "enclosed" design.
Owners of cars with monster turbochargers sometimes go balls deep and junk the filers altogether. This is pretty big school and usually only seen on crazy drag cars. The no filter route stops any restriction and looks the tits. Fine on the drag strip but in the wet, irty world of UK roads it's a bad move.
Hot air is your enemy here and it must be banished from the inlet. Enclosed induction kits are a great way of reducing intake air temperature, but there are other factors aside from the type of filter. For example, the pipework from the air filter to the inlet is also a prime target from the dreaded heat soak. Look at the bigger picture and consider other things that will affect inlet temps aside from just the filter type.
Extracts taken from various sources
Any extra info welcome