The Wikipedia entry says Celebrities is for two or more teams of three or more people each. I just changed that to "two or more people", we'll see how long that lasts. But seriously, you want teams of two. This is specifically selected to fit with the other rules; you need them all as a set because they all interact to control game play.
You see, here's what you want to have happen. You want all three rounds, not just one, and you can't pass in round one. Combined with the two-player teams, this means that teams frequently get a name that either the clue-giver doesn't know, or the guesser doesn't know. Either way, that team will spend most of their minute getting more and more frantic to get the clue across. This is funny! This is a spectator sport, and it means the other people who aren't playing right now get to have a good time.
I've played Celebrities where the rules are that there are only two teams. The good news is that you are actively guessing half the time. The bad news is, it's a freakin' boring game. Even when you know what name to guess, somebody else on your team probably yelled it out before you did. There's a good chance the person who wrote the name in the first place is on your team. The game goes really fast, so you have to make people write down five or six names in the first place, and they all get guessed easily, and then the game's over. Boring!
With the two-member team form, your team is 'playing' much less often, but it's a lot more fun to watch. Just as important, when there's a 'hard' name in the bag (more obscure, or pretty similar to some of the other celebrities), then multiple teams end up trying to give clues for it. This really sets up the second round. One team in round one is stuck on "George Washington," and somebody was yelling "Crossing the Delaware!" and rowing frantically. In round two, somebody says "Delaware" and rows, and "George Washington!" comes right back. Forcing teams to struggle in round one creates valuable source material for rounds two and three. Funny, funny source material.
In rounds two and three, the guesser gets only one guess. This is also really important. If you've got "Mariah Carey," "Tony Bennett," and "Beyoncé" in the bag, you can't just use "Singer" as your clue, at least not until some of those names have been guessed by other people and aren't in the bag. So you have to say "Singer" and croon it if you want Tony, or glam it up for Beyoncé like you're on stage. Again, this specific, particular set of rules forces players to get creative with clues, and that makes the game more fun to watch and to play.