It's an in-universe "rule", made in reaction to a meta aspect of the storytelling.
I mean, basically it's saying "Hey, us bad guys have a tendency to turn on each other due to being...well...badguys. I don't like this, so we're going to stop it, by purging everyone down to just two people, because that means it's less likely we will turn on each other." *spoiler: it doesn't, it just narrows down the number of targets*.
But, the entire thing of "evil turns on itself" isn't unique to Sith, it's one of the most staple aspect of storytelling in human storytelling. It's one of the ways that a downtrodden, hopelessly outnumbered Band of Heroes, are able to destroy the Big Bad. The fact that the bad guys frequently lose sight of the bigger picture, due to personal ambition and greed, and turn on each other at inopportune times, is how the plucky band of adventurers are able to live long enough to actually win, which they are supposed to do, because they are the Protagonists of the story.
And it feels to me like the author who came up with that silly rule, just simply doesn't like that particular trope in storytelling, so he decided to permanently rewrite the entire Star Wars canon structure, due to his personal distaste of "The Bad Guys Lose, because they are Bad Guys and turn on each other" trope.
And the funny thing is, this isn't even the only time this has been done, the whole "Hey, maybe we shouldn't fight each other so much" thing. Dragonlance did it too, but in that series, they were at least realistic enough to acknowledge that 2 people trying to uphold an entire mythic ethos, and establish powerful dominance in a galaxy spanning society for long term, is pretty much impossible. In the...4th Age of Dragonlance I think? Maybe 5th Age? I forget. Anyway, the followers of Takhisis, the Goddess of Evil, basically stopped fighting each other, and created an entire Order of Dark Knights, who worked together, and pretty much conquered the world. Why? Because they actually had the resources to pull it off. 2 of them wouldn't have accomplished jack and shite. And they still lost in the end. Why? Because they were the antagonists, and that's their job. To be the conflict the protagonists overcome and triumph against.
So yeah, the Rule of 2 is silly (though I do acknowledge the name has a nice dramatic ring to it) in my opinion, and I think that's why. Just felt like sharing that when it popped in my head.