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GT1 is proper top end racing cars, derived from road going vehicles but with basically nothing of the road version left.
GT2 is the next rank down, still very fast and a with more bespoke tech than lower tiers. They can take the full suite of racing tyres too, from qualifiers to super-hards. Tyres, being the only thing connecting the car to the track, can make all the difference.
GT3 is closer to a road car (not remotely road legal, though) - less racing spec tech and more road tech like ABS and TCS. They are restricted to the mid range of tyre compounds. Even if they have the same engine, they won't be as fast as a GT2.
GT4 is more like top end track day stuff, I think.
You've got prototypes aswell, way above GT1 in performance, mainly built for endurance racing like LeMans.
Anyway, every one of these cars are purpose built racecars. Some may be based on a road going counterpart, but nevertheless in most cases there is little relations between the racecar and the street car, despite what various manufacturer's marketing departments would want you to believe.
The major issue for most race organizers is two fold, cost and competition. If it costs an exorbitant amount of money to compete no one will want to pay the expense and the series will collapse. The other issue is race watchers want to watch close racing where anyone can win. If one team walks away with the series, year after year, fans will lose interest and the series will collapse.
Way back in the day every sports car raced was based on a road going counterpart. Manufacturers, to get an competitive advantage, started making purpose built racecars that had no or few road going counterparts. As I said, fair competition is required to have a healthy race series, and racing purpose built cars against modified road cars is inherently unfair. Thus the "Prototype" class was created.
Highly modified exotic street cars that had partly few street examples became GT1 (think Mercedes CLK-GTR). High performance sports cars with less preparation became GT2 (think Dodge Viper GTS-R). And GT3 didn't exist at the time.
After awhile GT1 became too expensive to field a great many competitors and that class folded. GT2 (then called GTS) took GT1's place as the top level of sports car competition. The "GT" class was created below the GTS class, and had less preparation and generally were based on less powerful cars (think Saleen S7R and Corvette C5R in GTS vs the Ferrari 360s and Porsche 911s in GT)
After awhile GTS became too expensive to field a great many competitors and that class folded. GT class was then basically split. The professional factory efforts were segmented out into GTLM. The rich guys and teams that could never compete against the might of a factory effort were put into GTAm. GTAm has the same cars, literally, as GTLM, but they must (basically) be driven by amateur drivers.
Another class was created "below" GTLM, also for amateur drivers, and that is where we enter GT3. The FIA knowing that the most important problems for a racing series to tackle is cost and competition created GT3 to tackle just that. The car are prepared to a lower standard than GTLM (less downforce). The cars are specifically designed to be easy to drive for an amateur driver. That is why driver aids like ABS are allowed (GTLM cars do have Traction Control). The cars are also very strictly managed to have even performance with each other (Balance of Performance also known as BOP).
Long answer to your question, but I hope that helps you get a complete picture.
By combining classes you can still race cars together which are pretty similar. There's a much wider spread of skill between gamers, compared to real life racing drivers so this can also help even things online or against the AI.
IIRC GT1 is either dead or about to be dead in terms of stock cars. I think that GT1 is just prototype cars already or nascar-styled "prototypes with stock car skin on top".
GT2 and GT3 are very similar but for some reason GT3 is more famous even if GT2 is "more pro".
GT4 is more like Group N in rally. Almost stock suspension and engine.