A conflict in terms of installing a model is where the model being imported changes an element that is assigned to a different model in the same layer.
Even with the object model shredded to the level it is in AX 2012, there is still a chance that two ISVs will modify the same element in the same layer (perhaps both change a property of a form control or modify the same method).
Modifying the same method should be rare, as they should (as much as possible) use event handlers to hook into standard methods. This is not always possible, but it does reduce the risk of such conflicts if used appropriately.
The following are the three options in this scenario: