"Two out of three ain't bad" is a trite cliché often used for comic effect. ("How was your date?" "He was tall, handsome, and incredibly boring." "Well, two out of three ain't bad.)
Jim Steinman, who was Meat Loaf's songwriter, turned the saying into a song about the elusive nature of love. The song begins with Meat Loaf getting kicked to the curb by his girl, presumably because he won't tell her he loves her. He makes the case that even though he will never love her, he's good enough, since after all he does want her and need her, and happy endings are only for fairy tales.
We then learn that his commitment issues step from a previous relationship - one with the only woman he will ever love. She once left him with the same explanation: I want you, I need you, but I'll never love you.
Jim Steinman wrote this song after his friend, the actress Mimi Kennedy, suggested that he write a ballad along the lines of the Elvis Presley song "I Want You, I Need You, I Love You." She was implying that he should write something straightforward and simple, but Steinman doesn't work that way. He used the phrase, but added a degree of Shakespearean drama that was typical of his work.
In America, this was the second single released from the Bat Out Of Hell album. The first single, "You Took the Words Right Out of My Mouth," didn't chart, but by the time "Two Out of Three" was issued in March 1978, the album was picking up steam and the song rose up the charts, peaking at #11 on July 8.
The single was edited down to 3:58 from the 5:23 album version.
Todd Rundgren produced the Bat Out Of Hell album. On this song, he used the other three members of his band Utopia: Kasim Sulton on bass, Willie Wilcox on drums, and Roger Powell on synthesizer. Rundgren played guitar and also sang backup on this one.
This song got a big boost when Meat Loaf performed it on Saturday Night Live on March 25, 1978.