There are multiple drive modes in Forza 3…
Career Mode; competitive races, you gain “experience points” and at each new level, the game rewards you with a new car for free, only downside is if you don’t like the car you win, it’s only worth $100 in “credits” if you want to sell it, as your car gains levels, you get discounts on upgrade parts
Career mode also has the option for realistic damage modeling and tire wear, your car can actually get so thrashed that it stops running, when you finish a race, any damage your car has incurred is deducted from the winnings to pay for repairs
Free Play is more of a “sandbox” mode, you can choose “Quick Race”, just what it sounds like, or “Hot Lap” which is just you and the track, take as long or as short a drive as you want
the downside to Free Play is that the damage modeling and tire wear is turned off, so it’s not as realistic as Career mode
Oh and one thing I thought was funny…
I had just got done putting the final touches on my Porsche 911, an AWD drivetrain and Limited Slip Diff., I shifted the traction profile to 90% rear 10% front, as to keep as much of the 911’s classic rear-engine-rear-drive characteristics as possible, I may lower the ratios to 95% rear 5% front, give the fronts just enough grip to pull the car out of some nasty switchbacks…
I looked up at the “Performance Index” number, a number that gives a rough rating as to it’s performance level in that class and discovered that it’s PI number was…
“666”
COOL! :), I’m keeping the mods as they are now… 
Oh, BTW, just to give you a rough idea of how far I’ve upgraded some of my cars…
the letter grades are as follows;
F-E-D-C-B-A-S-R3-R2-R1
'82 Porsche 911, original score C-360 (296 HP), fully modded S-666 (616 HP)
'90 Chevy Camaro IROC-Z, original score E-219 (245 HP), fully modded R3-750 (899 HP)
'03 Dodge SRT-4, D-343 (270 HP), still modding it, currently at S-619 (578 HP)
'06 Saturn Ion Redline, D-276 (205 HP), fully modded S-640 (483 HP)
'10 Fiat Abarth 500, E-207 (160 HP), fully modded A-574 (386 HP)