Are you referring to the perceptual compromise and apparent distance theories? I'll try and explain them:
Muller Lyer Illusion Apparent Distance Theory Before explaining this theory, I'll try and use an example. Just say you are looking at two balls – one which is 2 meters away from you (ball A) and one which is 4 meters away from you (ball B). Use of depth cues enable you to perceive Ball A as being closer to you than Ball B. Both balls are casting an image of the same size on the retina. Due to our knowledge that objects which are far away produce a smaller image on the retina, and are actually larger in reality, we perceive Ball B as being larger than ball B (which it is.) In a three-dimensional world, we maintain a constant perception of a familiar object's size by taking distance into account.
Firstly, here's a picture of the Muller Lyer Illusion:

In the muller lyer illusion, the attachments of the lines (arrow head and feather tail) supposedly add 'depth' to the line (think back to depth cues to aid in understanding this). Therefore, each line appears to be at a different distance. We perceive the line with the feather tail to be further away from us (looks like the inside corner of a room), and the line with the arrow head to be closer to us (building’s outer and closer wall)



Basically, because we perceive the line with the feather tail as being ‘more distant’ from us, and because it is casting an image of the same size on the retina as the line with the arrow head – we incorrectly assume it is larger. What has happened is we have misapplied size constancy in a two-dimensional setting, causing an illusion to occur. [Size constancy should only be applied in a 3-dimensional setting]
Perceptual compromise theory According to the perceptual compromise theory, we perceive conflicting information in the Muller Lyer illusion, which we then weigh up.
Basically, the contradictory information we receive is:
-horizontal lines are equal.
-However, the total length of the FEATHER ENDED tail is longer than the total length of the ARROW ENDED head.
As demonstrated here:

As represented above, the outline of the feather tail line is larger than the outline of the arrow head. It is proposed that we mentally 'fill in' the gaps and create imaginary lines around each figure, leading us to believe that the feather tail is larger.
Ames Room Apparent distance hypothesis The Ames Room is different from the muller lyer illusion. The Muller Lyer illusion involves the incorrect application of size constancy (applying it when it shouldn't be applied), whereas the Ames Room involves the inability to utilise size constancy at all.
The distance of the two individuals from the viewer of the Ames Room appears to be equal - despite the fact that the individual in the left hand corner is further away from the individual in the right hand corner (perhaps in the case of the Ames Room, it should actually be remembered as the 'apparent
LACK of difference theory' - but don't call it that in the exam.) So when an individual walks from right to left, they appear to shrink, when they are actually just moving further away from the individual (inability to apply size constancy). We are only able to view the room with one eye, thus we are unable to use binocular depth cues to perceive depth and distance (only monocular.) Usually, when someone walks further away from us, we do not perceive them as getting smaller and smaller despite the size of the image reducing on the retina, as we are able to utilise size constancy (sorry for being extremely repetitive here.)
In the Ames Room, the viewer utilises shape constancy instead of size constancy - as they are perceiving the room as square, rather than trapezoidal, and are seeing the individual as growing/shrinking rather than just moving closer/further away from us.
Pic taken from:
http://illusionism.org/media/ames-room.pngHope that helped
