Type 1 storage areas are ancient and obsolete but still supported. No user data, indexes or LOBs should be in type 1 storage.
Type 2 areas are the foundation for all modern features of the OpenEdge database. All user data, indexes and LOBs should be in type 2 storage.
A type 1 data block mixes data from multiple sources. Customers, orders and order-lines might, for instance, all be together in a block. In type 2 blocks all data is from a single table. This is much more performing.
Type 2 areas have a “cluster size”. 8, 64 or 512 blocks are allocated per cluster rather than just one with a type 1 area. This also greatly improves performance.
All of your data should always be in type 2 areas. There are no exceptions.