To produce a panorama, Panorama Tools warps images and places them on an imaginary sphere. For a perfect view of the panorama you could stand in the center of the sphere and look out toward the images. To print a panorama, the sphere must be projected onto a flat surface. Two methods may be used to make a printable panorama: rectilinear projection and cylindrical projection.
For rectilinear projection, imagine a flat sheet of paper that just touches the sphere at the equator, and a light in the center of the sphere that projects the image onto a flat sheet of paper. Theoretically you could project up to 180° of the sphere onto the paper. To avoid excessive distortion, 100° is a more practical limit. Distortion occurs at all edges and corners of the image, and the panorama will appear as if it were taken with an ultra wide-angle lens.
Cylindrical projection is similar to rectilinear projection, only the sheet of paper wraps around the sphere, touching the sphere at all points on the equator. With cylindrical projection you can go up to 360° horizontally, and 180° vertically. Distortion is confined to the top and bottom edges, and vertical distortion becomes objectionable after 100°.
For more information visit Eric Weisstein's online reference for map projections.