3x Monitor setup with DisplayLink on MacOS
 

I have a DisplayLink device connected to my MacBook M1 Pro via Thunderbolt.

Monitor 1 and Monitor 2 are connected to the DisplayLink device via DP and work in "extended" mode just fine. Monitor 3 is daisy chained to Monitor 2 via DP cable. Monitor 3 only "mirrors" Monitor 2 and does not allow to extend the display.

Please help me get monitor 3 to extend. I've also tried via HDMI.

The 'daisy chaining' feature within your monitor is known as DisplayPort Multi-Stream Transport or DP MST. Macs do NOT support DP MST, which is why your displays are mirrored.