That's because the Thunderbolt controllers made be Apple and Intel only had at most two "Thunderbolt DisplayPort In Adapters". Read the USB4 spec about "DisplayPort In Adapters".
I don't think there's anything about Thunderbolt that limits the number of DisplayPort In Adapters to two. A Thunderbolt controller has many adapters - usually less than 14 - but can have up to 64.
Intel Thunderbolt 5 host controllers have 3 DisplayPort In Adapters.
M4 Pro has two DisplayPort In Adapters (but we could use ioreg info from someone else to verify).
We're still waiting for someone to check the number of DisplayPort In Adapters on an M4 Max.
Adding docks and displays does not add DisplayPort In Adapters (except for the BlackMagic eGPUs and the Sonnet eGPU Breakaway Puck RX 5500XT/5700).
Thunderbolt 1/2 docks/displays usually have one DisplayPort Out Adapter.
Thunderbolt 3/4 docks/displays usually have two DisplayPort Out Adapters. An LG UltraFine 5K displays uses two DisplayPort Out Adapters. Newer Apple displays that use DSC will use one.
Thunderbolt 5 docks have three DisplayPort Out Adapters.
That comes from
https://support.apple.com/en-ca/101571 and refers to connecting 4 displays to Thunderbolt. The MacBook Pro only has three Thunderbolt ports, so of course you need a Thunderbolt dock or chained Thunderbolt docks/displays to get up to 4 display outputs from that MacBook Pro.
You have a few options for connecting 4 displays from Thunderbolt (ignoring HDMI):
(A) 2 direct from two Thunderbolt ports + 2 from remaining Thunderbolt port.
(B) 2 from one Thunderbolt + 2 from another Thunderbolt port.
(C) 1 direct from one Thunderbolt port + 3 from remaining Thunderbolt port.
To support (C), you need a Thunderbolt host controller with three DisplayPort In Adapters.
As for DisplayPort Out Adapters, you can use any Thunderbolt device or Thunderbolt display to add one, two, or three DisplayPort Out Adapters. You can chain them if necessary. You should have the fattest pipes (Thunderbolt 5) connected closest the host. Each DisplayPort Out Adapter requires a DisplayPort In Adapter connected to a GPU to work.
https://support.apple.com/en-ca/101571
Thunderbolt devices and Thunderbolt displays can be daisy chained up to 5 levels deep (or 6 for Thunderbolt 3 and earlier). You are probably referencing display chaining with DisplayPort MST. macOS does not support multiple displays using MST - only display mirroring.