After Jesus' attendance at the Passover and His conversation with Nicodemus, He and His disciples left Jerusalem and remained in the region of Judea likely for several months.
Baptism is mentioned several times in this context, and I don't believe that such is a coincidence. This is a logical follow up to the previous discussion of the new birth. It is most reasonable to understand that Jesus, through His disciples (cf. 4:2), is administering the same type of baptism that John the baptizer was. No change would be made in this baptism until after Jesus' resurrection (cf. Matt. 28:19,20).
John 3:23 mentions the reason why John was baptizing in Aenon: because there was "much water there". This would not be important at all if he were sprinkling or pouring water upon individuals (since neither of those acts require much water)! However, this would be a good reason for using such a location if immersion was being practiced. The word for baptize in the Greek language means "to immerse; to submerge; to make overwhelmed." Much water is required for such.
Verse 24 reveals a chronological note. Jesus' ministry was well under way before John's ministry ceased. It would not be much longer before John would be thrown into prison and beheaded.
A dispute arose regarding purification between John's disciples and the Jews (cf. 3:25). Although the details of the dispute were not recorded, it probably had to do with the Mosaic law on purification and how it related to the baptism of John. Whatever the nature of the dispute, it brought to the attention of John's disciples the fact that Jesus was baptizing more disciples than John.
John's disciples were resentful of this fact as they reported to John - "All are coming to Him!" (3:26). They recalled John's testimony of Jesus (1:29), and yet they were evidently perplexed and worried about Jesus surpassing John in human popularity or number of converts.
John addressed their unfounded concern in 3:27-30. He frankly admitted that he wasn't the Christ, but that he had been sent before Him to prepare the way (cf. 1:23; Mal. 3:1; 4:5,6). He explained to them that Jesus is the bridegroom and that he is merely the friend of the bridegroom. We know, from other New Testament passages, that the church is the bride of Christ (cf. Rom. 7:4; Eph. 5:22-33; Rev. 21:2,9).
John the baptizer showed his greatness in verses 29 and 30. He never claimed to be anything other than what he was, and he had fulfilled his mission that God had determined for him. He didn't resent the increasing popularity of Jesus, but he rejoiced in it. Just as the friend of the bridegroom finds pleasure in the bridegroom's coming, so John's joy was complete as men turned to Jesus and gave Him the honor that He deserved.
When John said - "He must increase, but I must decrease" - he showed his willingness to fade into obscurity so that the Christ might be properly exalted. May it also be so with us! John knew no envy, and thereby proved his fitness for the important work God had given him to do. True greatness is not in being served, but in serving (Matt. 20:26,27). Those who are wise will come to understand and live by this truth today.