As posted on our solo gameplay page, here is an explanation of drops and playing co - op vs solo.
Also check out Boss Loot Explained page for an explanation of why boss loot isn't always so nice.
Wilson: "We’re trying to make the game slightly more attractive to play cooperatively. When you play in a group, each player gets maybe a little bit more loot, but not necessarily any better loot than you’d get in a solo game.
The drop system in Diablo works like a slot machine, the more drops you have, the greater chance you have to get something better. So the co-op situation is fine-tuned so that the chances of monsters appearing are higher.
Let’s say we’re playing with 3 people, all together, and we defeat a skeleton. The skeleton drops something for everybody, but your drop can only be seen for you, nobody else. So we no longer have to fight with others to get our fair share of drops.
We don’t want players to be alone, we’d rather they be in a group. You might be at a slight disadvantage playing solo, but not enough that you won’t want to play. We adjust automatically whenever players join or leave. You likely won’t see any loot changes from boss kills, and it’s not necessary, since when he dies everyone will get their own loot, which is the biggest change from Diablo 2.
This can become advantageous if you exchange and trade your drops with theirs and is another way to bring players together. It’s also one of our main objectives, we want players to be level with each other and we don’t want them to be discouraged to overcome obstacles together [at the risk of maybe not getting any loot]. We don’t want people to be like “I don’t want to play with you because you steal all the loot.” So we remove the possibility to do this, so the experience can be positive for every individual who decides to play."
So the new drop system in Diablo 3 makes monsters drop several items specific to each person in the game. That means no more ninja looting of items at the moment that you see them. This is a huge change from the Diablo 2's quick "loot or lose out" system we are all so used to.
Does this make the game any less fun? Not really. In Diablo 2, it was kind of annoying when you got some good drops with your party, and someone ends up getting them all because they were right next to where the items dropped, and clicked the screen quickly. So now this new system will be able to balance the items out for everyone. There will finally be no more leeching for items in Diablo multiplayer.
This new drop system will help avoid some of the problems in the past and make for a more enjoyable game. I think everyone will agree that it is a step forward from the older Diablo 2 drop system.
Of course I am sure many will not be pleased with this new system, and will want the old system back, where anyone can pick up anything that drops at any time. But you have to realize that games always improve all of their features, in a series, so in the long run, this will be better for most people, and I am glad Blizzard is implementing it.
Note: This page was updated May 20, 2012.