You can dismiss 1 out of hand: this is the structure for a question, where what is used as an interrogative:
I do not know: what is the difference between some words?
Both 2 and 3 are acceptable. What here is the head of a Wh- cleft (pseudo-cleft). Here the basic proposition is The difference is X; what substitutes for X and moves to the front, giving the fixed order what the difference is.
Between some words is a prepositional phrase which may be analyzed either as an adjunct modifying difference or as a complement licensed by difference; for the present purposes it doesn't matter.
When it comes to where we place the prepositional phrase, three principles operate:
- We try to keep the principal constituents (what, the difference, is) as close together as possible.
- We try to put 'heavier' phrases at the end.
- We try to keep adjuncts or complements as close as possible to the constituents they modify or complete.
In this case there is some conflict between them: Principles 1 and 2 both call for the prepositional phrase to come last; but Principle 3 calls for the prepositional phrase to come immediately after difference.
Accordingly, you are free to put it in either place.