When a college says 3 years they mean taking level 3.
The group of colleges my D wanted to attend looked for 3 years of foreign language – she took one year of HS level Spanish in middle school (that did appear on her HS transcript) and two years in HS. She stopped Spanish after she completed level 3 to take academic electives she preferred. Stopping foreign language at level 3 after sophomore year did seem to cause any problem with her college outcome.
There is a pinned thread on the top of this forum with faqs about foreign language which you may choose to read through as well.