How does AppleCare coverage work for MacBook Air?

When you purchase a fixed-term AppleCare+ plan, you get a total of three years coverage; that is, you get the base one-year warranty and then two additional years. See:

AppleCare Products - Mac - Apple

Or you can buy a plan that renews automatically year-by-year until Apple drops support for your device.

Regards.

AppleCare+ also provides for accidental damage at reduced repair rates for 3 years.

The AC+ article linked by @varjak paw explains it all.

FYI, for the accidental damage portion you need to realize that the "external enclosure damage" refers to the Rear Display Housing. So the $99US portion of that article regarding accidental damage "for screen damage or external enclosure" is referring to the laptop's built-in Display Assembly. The "Other accidental damage" section for $299US refers to the rest of the laptop (aka the base of the laptop) which includes everything else. If there is damage to both the built-in Display Assembly and the base of the laptop, then the total repair cost would be $398US. This is not very clear in that Apple article, but this is how it works (personal experience).