the first two steps are establishing awareness of breathing when the mind loses awareness of the breathing it must start again step 3 is something more subtle, which occurs as mental sensitivity to the breathing grows step 3 is the sensory impact of physical body (internally) as a 'body' within the context of awareness of breathing as a 'body'
step 3 is something 'spiritual', i.e., connected to insight into ease & suffering (per MN 149, below)
step 3 begins with the words: "he trains himself", which means the fruition of higher morality, higher concentration & higher wisdom
where as steps 1 and 2 are just samadhi training; just preliminary steps