Types of Ignition Systems

There are four different ignition systems you can use on a VW:

1. The Stock Points/Condensor System. Works okay, but the voltage at the plugs gradually drops as the rpm increases (this happens with all points/condensor systems) and the points will also start to "float" at very high rpm. The plugs get about 18,000 volts. The points wear fast because they have to switch about 5 amps, and so they spark. The condensor reduces the sparking but it still happens so the points wear out (burn). The spark also slows down the switching process, so the coil gets a "soft" switch and the resulting plug voltage is a little less than it could be. (The coil produces the high voltage to the plugs when the points open and the magnetic field inside the coil collapses. The faster you can cut the power to the coil the faster that field collapses so the better the plug voltage).
2. The Pertronix/Compufire Points Replacement Modules. These replace the points with a hall-effect sensor or (in some earlier models) an optical sensor. They electronically switch the power to the normal coil, so the coil is still working at 12 volts (but the elecronic switching is faster than the sparking points so coil performance is a little better). The plugs get about the same 18-20,000 volts. These points replacement units don't wear so your timing stays very steady and doesn't need adjusting much.
3. Transistor Assisted Ignition. These use a very small current through the points to switch a power transistor on and off (imagine the power transistor as an electronic relay - using a small current to switch a bigger current) and the power transistor supplies a normal 12 volts to the coil. But like the Pertronix it provides faster switching than sparking points can, so coil performance is a little better than stock -- still in the 18-20,000 volts range to the plugs though. The points last a long time as they don't spark any more -- only a tiny trigger current flows through them. These systems are not very common these days, but will work well, and are easy to build. You could consider these sytems as a cheap alternative (but roughly equivalent) to the Pertronix/Compufire.
4. CDI - Capacitance Discharge Ignition. This can be triggered by 1 or 2 above, but is not used in conjunction with 3 at all. (Consider it as a BOOSTED #3). The CDI system has a couple of very large capacitors continously charging from a high frequency circuit using a "toroid" (donut shaped) transformer inside the unit (the high frequency produces the characteristic whine like a camera flash charging up) and when the points or the Pertronix triggers it, the capacitors dump about 400v through the coil, so you get about 40,000 volts out of it for the plugs, rather than the normal 18-20,000 volts. This provides a thinner but much hotter spark which will light a weak or rich mixture, so you get easier starting, and you also get slightly better economy, and your plugs last longer. And of course -- if you use it with the normal points, the points will last a long time because they are only providing a small trigger current - the capacitors are providing the main pulse to the coil. You can open the plug gap a little with a CDI - for a longer spark. Up to about 45thou, but if you set it at 35thou you can forget the plugs for many thousands of miles -- the electrodes with still burn away slowly, but won't go "over gapped" because you started with a modest increase. One useful feature of POINTs fired CDIs is that they can be used to upgrade the ignition on early VW engines and still retain the retarded No3 ignition which is needed for the non-doghouse engines.

   MSD is usually a variation of the CDI - providing a multi spark rather than a single spark.

There are also magnetos which will fit the VW engine -- these are self contained ignition systems. No battery is needed, and magnetos are sometimes used in VW aircraft engines.