There are a few different types of cables within AE2 but in order to explain channels as easy as possible we will use Smart cables and Dense Smart Cables.
Each basic cable (Smart Cable, covered Cable and Fluix Cable) can have 8 AE2 devices ((ME interface, screens, autocrafters, anything)) attached to it, these 8 slots are called channels or lanes. The cable can be as long as you like but can only support up to 8 devices. These channels will be used up as you add more and more devices, if you add more than 8 the whole network will turn off.
You can set up a very small network with cables but again you are limited to 8 devices. These small networks will need power from an Energy acceptor, this can be attached to the cable thus powering the network and all machines that are attached. Energy acceptors do not take up channels so don't worry about taking up valuable channels. You can also add energy to your network using Quartz cables as these will only transfer power.
As your network gets bigger it may be harder and harder to keep track of how many devices have been added. Smart Cables provide a diagnostic function by visualizing the channel usage on the cables, the channels appear as lit colored lines that run along the black stripe on the cables giving you an understanding of how your channels are being used on your network. The first four channels show as lines matching the color of the cable, the next four show as white lines. As you move further and further up the cable it will show how many channels are being used.
As you grow your network you might find that 8 channels is not cutting it, lucky AE2 adds the Controller, this block needs power and once powered it will have 32 channels per face. Powering one face leaves you with 5 faces with 32 channels for each face but you can add more controllers providing you are not breaking any of the following conditions:
The power does not have to be connected to the Controller itself, it can also be connected to any cable running from the controller, as long as it's on the same network.
All ME Controller blocks on a ME Network must be connected; else the blocks will turn red. The size of the ME Controller must be within 7x7x7; else it will turn red. A ME Controller can have 2 adjacent blocks in at most 1 axis; if a block violates this rule, it will disable and turn white.
The controller will turn RED or WHITE and not work if any of the above rules are broken.
Using one controller we can attach a dense cable to one face, this dense cable can also carry 32 channels, this means you can attach 32 devices to this cable. It's a good idea to use different Dense Smart cable colours as cables of the same colour will connect to each other, you can force them to not connect to each other with anchors but it's easier to organise if you use different colours. The lights on the dense cables will get brighter and fill up more as you add more devices.
You might think that you can create a network without a controller and just use dense cables but this does not work, dense cables will still only carry 8 channels without a controller.
8 Channels are being used in the above image, adding more devices will knock the whole network offline.
One last thing to note is that you can create a network with as little as 1 cable. Each device which has a glass cable as part of its craft component will also act as a cable when devices are next to each other. This network has 8 devices (7 drives and 1 crafting terminal). As terminals need to be attached to a cable in order for you to access them one cable is all that is needed to create a small storage network:
You can set the priority of different storage devices (Drive, Chest, Storage Bus) to prioritize them over the other storage devices. Example: You have 2 ME Drives but you want to fill Drive A first. In the ME Drive Interface you click on the top right wrench button and set the priority of Drive A higher than Drive B.