Adding third channel to the PIC32 starter kit `DMA chaining and PWM´ example
The reason is explained in the PIC32MX DMA controller reference manual (page 31-35):

A channel (slave channel) can be chained to an adjacent channel (master channel).

This means you cannot chain 3 DMA channels together.
But to answer your question about how this chaining works, look at page 31-16 in the manual:

CHCHNS: Chain Channel Selection bit(5)
1 = Chain to channel lower in natural priority (CH1 will be enabled by CH2 transfer complete)
0 = Chain to channel higher in natural priority (CH1 will be enabled by CH0 transfer complete)

The channel 0 has the highest priority, and channel 3 the lowest (the Pic32MX360F512L has 4 channels). So setting the first DMA channel to chain in lower order means it gets triggered by channel 1 (in your example).