That will happen if the chain and rear sprocket is worn out. Check the chain length - 12 full links must be 12". If longer than 12" by about 1/8", then that may be the reason for the crunching. The front sprocket may be OK.
But 3 speeds may also slip like that internally if the ratchet or pawls in the hub are worn. Although if it happens in 2nd, then it must be the chain, 'cuz 2nd is directly driven.