In part 3 of "Atomic Habits," the author delves into the "how" of habits, exploring the 4-step process of habit formation: cue, craving, response, and reward. He explains that cues trigger a craving, which motivates a response, leading to a reward, reinforcing the habit loop. To create good habits, make cues obvious, cravings attractive, responses easy, and rewards satisfying. Conversely, to break bad habits, make cues invisible, cravings unattractive, responses difficult, and rewards unsatisfying. Understanding and mastering this cycle can help individuals build or break habits effectively.