Network Modes

Basically, wireless networks can be classified into three network modes:

Managed Mode (Infrastructure Mode), via Access Point
Managed networks have a managing element: the access point. In this mode (also referred to as infrastructure mode), all connections of the WLAN stations in the network run through the access point, which may also serve as a connection to an ethernet. To make sure only authorized stations can connect, various authentication mechanisms (WPA, etc) are used.

Ad-hoc Mode (Peer-to-Peer Network)
Ad-hoc networks do not have an access point. The stations communicate directly with each other, therefore an ad-hoc network is usually faster than a managed network. However, the transmission range and number of participating stations are greatly limited in ad-hoc networks. They also do not support WPA authentication. If you intend to use WPA security, you should not use Ad-Hoc_Mode.

Master Mode
In master mode your network card is used as the access point. It works only if your WLAN card supports this mode.