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Would I have to play 1 and 2 to understand and enjoy the story of 3? Or are they individual stories in a series?
This question / problem has been solved by HypersomniacLiveimage
If I recall correctly, Dark Fall 1 and 2 are fairly separate; Dark Fall 3 does follow on from Dark Fall 1, but I don't think that one is likely to be confused if one hasn't played the first game, as the stories are not closely connected, save for taking place in the same location.

However, all three do take place in the same setting, and contain references to each other, so I suspect that playing the games all and in order might be a richer experience than playing just one.
I haven't played yet Dark Fall 3 (got it during this sale myself), but here's what MobyGames has to say:
Dark Fall: Lost Souls is the third game in Jonathan Boakes' Dark Fall series. Although it is set in the same abandoned railway station and hotel as the first game (Dark Fall: The Journal), the story is completely standalone and the entire location has been re-imagined graphically.
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HypersomniacLive: I haven't played yet Dark Fall 3 (got it during this sale myself), but here's what MobyGames has to say:

Dark Fall: Lost Souls is the third game in Jonathan Boakes' Dark Fall series. Although it is set in the same abandoned railway station and hotel as the first game (Dark Fall: The Journal), the story is completely standalone and the entire location has been re-imagined graphically.
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HypersomniacLive:
Thank you. I just got Dark fall 3 from foxworks and I had the exact same question in mind!
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phandom: Thank you. I just got Dark fall 3 from foxworks and I had the exact same question in mind!
You're welcome, but it's MobyGames you should be thanking. ;-)