Alright, a little background, brake fluid has a very simple function, to transmit hydraulic pressure. Since almost all liquids are realistically incompressible, engineers need to focus on designing a fluid that won't react with parts that it comes in contact with inside the braking system. In other words, water would rust and corrode/react with the pistons and other parts in the master cylinder or calipers so we need a fluid that won't do this. However, since the brake system is not closed and is open to atmospheric air, the fluid will slowly absorb moisture which will not only impede on the function of mechanical braking parts, but also lower the boiling point of the fluid.

Now dot 3 and 4 are interchangeable because they are created using the same base compound. On the other hand, dot 5 is made with a completely different compound that's incompatible with 3 or 4 so they must not be mixed. Generally, dot 4 has better boiling and other properties than 3 so if you go to a shop for a flush and they offer dot 4 for no extra charge then definitely go for it. Then, dot 5 has even better characteristics but if you'd like to use it you must completely flush your system of the old fluid making sure that none is mixed. But, since this is inconvenient and impractical, it is much easier to just use dot4 or a high performance brake fluid like ate or etc

 

And I pulled all of that from memory so I'm sure you can get a more accurate or better worded explanation with a quick google search