"How does this functionally work's in standard SAP,Is single person is allowed as substitute for multiple approver & Notification are forwarded"
Yes, one user can be a substitute for may users. notifications simply inform the users on waiting workflow tasks in their inbox. you can see if the substitution is working in the SAP business workplace of user03.
Now, check if there are substitution profiles defined. maybe user02's task do not belong to the substitution profile.
Also pay attention that substitutions are not recursive:
If user02 is a substitute of user01
and user03 is a substitute of user02
user03 will not see user01's workitems.