The string appears to be a cryptic clue in the style of a cryptic crossword.
But: if this is a from a larger set, and the answer length is given as 3 letters, then "by 3" means the word is 3 letters long, and the preceding text gives the wordplay. twbydy-am-by-3
If the answer is just ? "twbydy" = two by two = square, "am" = morning = A.M., "by 3" = ×3? Not fitting. The string appears to be a cryptic clue
But the simplest interpretation: = two-by-two = 4; "am" = AM; "by 3" = next to 3 → "4AM beside 3" → puzzle answer "TRI" (three) as the piece. "twbydy" = two by two = square, "am" = morning = A
But without more context, the cleanest match to a 3-letter "piece" is (as in a piece of something) — but the wordplay "twbydy" doesn't yield that.
(Roman numeral for 3, "piece" as in a piece of a set).
Given typical puzzle answer lengths, is a clue for "AM" with something? No.