The Collective is a term for any number of beings who have pooled their powers together, creating a bond between them, however the Power of Two, Three, Four & Five are generally the terms applied to this definition if the number of beings is anywhere from two to four. Only a handful of groups are shown to be part of a Collective: The Avatars, Vicus (along his demon children) and The Gods/Titans. Beings part of a collective are interconnected with the other members in various ways, the state of each member affects the state of all the others. If one were to die then the Collective as a whole would be weakened.
Because of this (and evidence from the show) the general rule appears to be that the larger the Collective the stronger its members become. However, the collective can only be as strong as the total strength that the powers it comprises of amounts to. Hence, a collective of lower level demons would be weaker than one of higher level ones, even if the amount of members is the same in each group.
Pros and Cons[]
The Pros and Cons of a Collective are the identical to that of a Power of Two, Three or Four bond but larger. For example, the more powers that are added to a collective the harder each of the members are to kill. A collective generally consists of many members and so each would be very resilient to death by something like a fireball.
However, if just one member of The Collective were to die then all of the others are weakened. The more members in a collective the greater the risk of one of them dying and hence since a collective usually consists of many beings the chance of one of the members deaths is muck larger than the chance of such a thing happening in a Power of Three.
Another con is that members of a Collective also tend to vary in their levels and amount of powers whereas in something like a Power of Three, the members tend to be (at least more or less) of equal strength.