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I hear and use both (in the way and on the way), but I am not sure which one is perfect on which situation. Please help me to understand the difference between these two (in the way vs. on the way).

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If the context is way, let me try to make it simple -

in the way would suggest some impediment, obstruction or the like
on the way refers to proceeding somewhere (and something coming) or on the way of journey

For instance,

"A tough guy was in the way not letting me pass through the corridor."
"Sure, why not? I'll meet Jane while going to my office. Her house is on the way."

Useful reading for in the way and on the way.

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'On the way' means 'during the journey'. We use 'to' if we want to say our destination

Example : Let's stop for lunch on the way. When we were on the way to France, we met Lucy!

On the way' can also mean 'getting closer to a goal'.

Example : Your parcel is on the way. (It's on its journey to you by post.)

'In the way' means 'taking up the space that someone needs'. We use 'of' to say what thing or person needs the space.

Example : • This box is right in the way! Let's put it in the bedroom. • Don't stand in front of me! You're in my way.

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