What is third differential in Land Rover defender?

The third differential is more commonly known as the centre diff as its located on the transfer box.

Older series land rovers were rear wheel drive until you engaged four wheel drive whereas the newer models that had a centre diff allowed 100% of the drive to go to either the front or rear axle depending on which one had the path of least resistance, when you engage 4 wheel drive you are locking the centre diff so it then transmits 50% of the drive to the front axle and 50% to the rear.