A "draft" is one complete pass-through of writing a piece (an article, blog post, short story, novella, novel, etc.).
Your "first draft" is generally considered the first time you commit the entire thing to paper (or pixels), from beginning to end.
After that, you can measure subsequent drafts or rounds however you like. It's reasonable to divide them as "one round of writing plus one round of editing equals one draft," but there's no ironclad rule. (I'm defining "a round" as going through from beginning to end until you're satisfied with the corrections you want to make, and you're ready either to hand it to someone else to see or to start from the beginning again.)
The first draft of almost anything is usually lousy because you're focused on building and iterating your ideas. Subsequent rounds (particularly with feedback of others) allow you to develop characters, polish your turns of phrase, fix plot holes, and cut out unnecessary scenes.
There's nothing magical about three drafts, or any other number of drafts. The writers who churn out several books a year I'm sure go through only a few drafts, while Mercedes Lackey famously rewrote her first trilogy seventeen times before the three books published.