The One Hundred and Fifty Verses of Praise says:
Take refuge in whomever
Has absolutely no shortcomings,
Absolutely no blindness, and in whom resides
Every aspect of all good qualities.
When you think of this,
Respect those who praise him
And abide by his teachings.
In other words, when you think of how to distinguish between what should be your refuge, and what should not, you will want to take refuge in the Buddha, the teacher of Buddhism, in his teachings, and in those who abide by his teachings. The average worldly person seeks refuge in worldly creatures – spirit kings, gods, nagas, spirits, and so forth. Non-Buddhists seek refuge in Brahma, Indra etc. but these themselves are beings in samsara so they are not fitting refuges.
Who then is a fitting refuge? From The Seventy Verses on Taking Refuge:
Buddha, Dharma, Sangha
Are the refuge for seekers of liberation.
That is, the only refuge is the Three Jewels: Buddha, Dharma and Sangha. But if we do not identify these three properly, we will not take refuge purely. We are not critical and so pretend to be Mahayana knowledge- bearers, yet when things go wrong, sickness comes and so forth, or when we have some important work to do, we seek refuge in worldly Dharma protectors, in spirit kings, local gods etc: we perform smoke purifications or carry wood talismans under our armpits; we rush off to the shrine of any deity. All this external activity indicates our inner state. Buddhists should entrust themselves to the Three Jewels. We may have actually gained admittance to a Monastery, but we do not even qualify to be Buddhists, let alone Mahayana knowledge-bearers.
Nagas, spirit kings, and others do not have these three qualities: omniscience, love and ability. They don’t even know when they are going to die. Normally they are categorised as animals or hungry ghosts, and their rebirths are inferior to ours. There is no worse method we could use than to rely on them. What means could be worse than to seek refuge in them? So far from protecting us from samsara and the sufferings of the lower realms, or even giving us a little temporary help, they may do us great harm instead.
Here is a story to illustrate this. A man with a goitre once went to a place haunted by flesh-eating spirits. A tax in flesh that these spirits paid to other creatures was due, so the spirits removed the man’s goitre. Another man with a goitre went to them and took refuge in them hoping for the same result, but the spirits did not destroy his goitre – they made it larger. Similarly, worldly gods and evil spirits are sometimes helpful, sometimes harmful; they can never be trusted.
Non-Buddhists make Brahma, Indra, Shiva, and so forth, their refuge. This is an improvement on the above, yet those gods are still not liberated from samsara and the lower realms so they cannot protect other beings. But Buddha, the teacher of Buddhists is not like these. Praise to the Praiseworthy says:
You proclaimed, ‘I am a friend
To you who are without protection’.
Your great compassion embraces all beings,
Teacher, you have great compassion,
You have love; you act by your love.
You are diligent, you are not lazy.
Who else could be like you?
You are the protector of all sentient beings;
You are a kind relative to all.
According to that section [the Buddha] has three magnificent qualities: omniscience, love and ability. Not only do spirit kings, evil spirits and so forth not have even a portion of these good qualities, but also the sum of the good qualities of worldly refuges, gods, nagas, and the like, cannot rival even the good qualities of a single Shravaka Stream Enterer.
Buddha is the ultimate refuge because he has taken the two benefits [benefit for self and for others] to their most developed state. Our teacher has eliminated all faults and possesses all good qualities.
Simply put, the ultimate jewel of Buddha is assumed to be the two dharmakayas, or ‘truth bodies’; the relative jewel of Buddha, the two physical kayas [the sambhogakaya, or ‘enjoyment body’, and nirmanakaya, or ’emanation body’].
The jewel of Dharma is as follows. The ultimate jewel of Dharma is anything that comes under the truth of cessation or the truth of the path – these are the [two] purifying truths [in contrast to the two truths of suffering and the origin of suffering] in the mind-streams of Aryas. As a guide,- we take the ‘truth of cessation’ partly to mean a freedom from [or the ‘cessation’ of some particular obscuration, this freedom being a function of a particular unhindered path. The ‘truth of the path’ is taken to be the means for Aryas to achieve these cessations and realisations in their mindstreams. People who have not studied the classics and who think at a lower level may instead identify the three scopes of the Lam Rim as a rough approximation for the ultimate jewel of Dharma.
Such things as the twelve divisions of Scripture are the generally accepted idea of the jewel of Dharma.
The jewel of Sangha is as follows. The ultimate jewel of Sangha are Aryas who have any of the eight good qualities of the liberated mind.
A group of four ordinary beings holding the monk’s full ordination vows is the generally accepted idea of the jewel of Sangha. If we help or harm these beings we will receive virtuous or non-virtuous karmic results in relation to the Sangha.
One doesn’t need all three of these refuges in order to be protected from some types of danger; each of the Three Jewels can protect one. Once a man in Dokham petitioned Avalokiteshvara while he was being dragged off by a tiger. The tiger immediately put him down and the man was freed from all danger.
After Purna became ordained and gained arhatship, some relatives and merchants went to sea to obtain choice sandalwood, but their boat began to disintegrate. The relatives petitioned the Arhat Purna [in their prayers] and were saved from the waters.
The king of nagas caused a rain of weapons to fall on King Prasenajit; Maudgalyayana turned it into a rain of flowers.
However, all Three Jewels are needed to protect one completely from samsara and the lower realms. To cure a patient of a severe illness, three things are needed: a doctor, medicine, and nurses. Similarly, in order to be freed from the serious illnesses of the sufferings of samsara and the lower realms, the danger of the peace [of Hinayana Arhats], or [samsaric] existence, one definitely needs all these: the Buddha, the teacher of the liberating path, who is like the doctor; the Dharma, the liberating path of the three scopes, which is like the medicine; and the Sangha, the friends of the Dharma practitioners, who are like the nurses. So, these three are things to take refuge in.
This teaching is an excerpt from Liberation in the Palm of your Hand by Pabongka Rinpoche