To understand the popularity of the 3-player mod, you have to understand the limitation of the base game. Stranded Deep was architected primarily as a single-player experience. When the developers finally introduced co-op, it was designed for a host and a single guest.
The mod is technically an "unlimited players" mod, though it is most famously used to unlock the third player slot. It bypasses the hardcoded check in the game’s code that limits the lobby size to two. stranded deep 3 players mod