"By far" means "by much," or "by a great amount." It is used to modify superlatives. It answers the question "by how much?" Example: "He is by far the best cook in town." (He is the best cook. How much better a cook is he than the other cooks? A much better cook. A *far* better cook.)

It just means "much more". "He is by far the better soccer player." = "He is much more the better soccer player."

By far means that something is easily more of a certain quality. For example, "This bread is by far the best I have ever eaten." Here, no bread that the speaker has tasted before came close to how good this bread is.