If you had some margins around your div1 and div2, you could see div3:
<h2>Why it breaks...</h2>
<div style="width:100px;height:100px;background-color:#ffff00;float:left;margin: 0 10px;">div1</div>
<div style="width:100px;height:100px;background-color:#0000ff;float:left;margin: 0 10px;">div2</div>
<div style="width:100px;height:100px;background-color:#00ff33;">div3</div>
<h2>How to fix it...</h2>
<div style="width:100px;height:100px;background-color:#ffff00;float:left;margin: 0 10px;">div1</div>
<div style="width:100px;height:100px;background-color:#0000ff;float:left;margin: 0 10px;">div2</div>
<div style="width:100px;height:100px;background-color:#00ff33;overflow: auto;">div3</div>
However, this is easily fixed using overflow: auto
on div3.
See fiddle: http://jsfiddle.net/audetwebdesign/jv7YB/
Why You Are Seeing This Effect
Your div3 in in the flow, with a specified height and width of 100px, and a background color of green.
Without the floats, you would see a green square positioned to the top left of the viewport which is the parent element. Within the green square, the text (more accurately, line box containing the text) is positioned to the top left.
When you add the floats, the floats are positioned starting at the top left of the view port and are painted over any regular in-flow content.
However, the line box containing the div3 text is shortened to make room for the floats, but the inline box is pushed down since there is no room in the div3 container to contain the floats and the original text.
The background of the div3 container is separate from the line box containing the text, and is is not pushed down as one might expect.
When you apply overflow: auto
to the div3 block, it creates a new block formatting context and the div3 block acts like a self-contained unit, so the green background encloses the content and any child elements.
References
For stacking order and how background colors are painted, see: http://www.w3.org/TR/CSS2/zindex.html#painting-order
For block formatting contexts: http://www.w3.org/TR/CSS2/visuren.html#block-formatting
For more insight about why block formatting contexts are implemented as they are, see:
Why does CSS2.1 define overflow values other than "visible" to establish a new block formatting context? courtesy of BoltClock