General

5-star EE's bring the equipment to a 5-star enhancement, same as using 5 EE/AEE
2-star EE's bring the equipment to a 2-star enhancement., same as using 2 EE/AEE

For example, you have a perfected scrolled Cane (including hammers) with 150 att.
If you use a 5-star EE, you gain +20 att (+4,+4,+4,+4,+4)
If you use a 2-star EE, you gain +8 att (+4,+4)

HOWEVER, if you first used the 2-star EE, and then use the 5-star EE,
you would still get the same result as if you used 5-star EE at first.
You WILL NOT get a 7-star equip, you still end up with 5-star equip.
So it is better to use 5-star EE if you want to save some AEE.

And if you used 5-star EE first, the 2-star EE becomes useless.

Let's say you use a protection scrolls to get enhancements on your desired armor. 5 Stars in one go will only require one protection scroll, if it works of course. While using the 2 star will get you two stars sure but when you want more you'll have to use more protection scrolls. 2 stars in my opinion are useless, just use an AEE then protect it and use another AEE. Anyways my explanation may not be right, but that's what I think it is.

For example, if you use a 2-star on a weapon above (150 attack I believe, someone correct me if I'm wrong) it would gain 4 attack per star, so in this case, it'd gain 8 attack, versus a 5 star, it'd gain 20. It depends on how much attack your weapon currently has, I can't recall any of the other for <150 off the top of my head though.

A 2 star also takes that item to 2 stars, while a 5 star takes it to 5 stars (if they pass). They don't add that amount of stars.

Hopefully this helps~

You get more stats and it saves you from using more normal / advanced enhancements?

The more stars there are, the better stats added