Here's a picture of the 3-rd burst setup as used in the current US versions of the M16 that have burst capability; the little wheel with 6 teeth on it acts as a "shot counter", that advances one tooth every time the bolt carrier cycles, until it hits one of the large "stop teeth". At that point, you have to release the trigger to reset for the next 3 rounds. There are a number of problems with this setup, including the fact that it doesn't reset to zero unless you happen to get off the trigger at just the right time (if you fire 2 rounds out of the burst, and then squeeze the trigger expecting another 3 rounds, you'll only get the last round from the previous burst). There are better designs available for this mechanism, but that's what Colt offered, and that's what won the contract.