Setting up AG listeners
How would this work. Am i missing something here? Am I doing something
wrong?

You don't need another IP for Server 2 because it is in the same subnet as Server 1. Your listener requires 1 valid IP address for each subnet that a cluster node is in. In your case, you have 3 servers, but only 2 subnets so you only need 2 IP addresses for the listener.
Only one IP is ever 'active' for the listener so even if the AG fails over from Server 1 to Server 2, the IP address for the listener will stay the same, but Server 2 will begin listening on that IP.