Britain is interesting in that it uses proportional representation and yet has a two-party system (Labour and Conservatives). Although I think the Liberal party there is stronger than any third-party in the states.
We don't have proportional representation here, though the Liberal Democrats have been trying to implement it. Each constituency votes for their MP. The person that gets the most votes becomes MP for that constituency. The more MPs, the more power in parliament. The leader of the most powerful party is the First Lord of the Treasurer and Prime Minister.
So the constituencies have proportional representation, but the constituents don't necessarily have it. If I recall correctly, the Liberal Democrats received about a fifth of the popular vote, but they only occupy a tenth of the seats. In contrast, the two main parties received two thirds of the popular vote between them, but make up four fifths of parliament.
It means that we can have quite a variety of political parties here, since they stand at least a little chance of winning 1 or 2 seats if they are strategic in where to run. But, ultimately, the system significantly favours two parties.
Edited by Modulous, : No reason given.