infielddad is correct: a player who was recruited to a 4 year school and transferred to a D1 would have to serve a year in residence before being eligible to compete.
This doesn't just apply to D3 players. Here's the rule:
14.5.5.2.10.2 Nonrecruited Student. A student-athlete who does not qualify for the exception due to Bylaw 14.5.5.2.10-(a) may use the one-time transfer exception, provided he or she was not recruited by the original four-year institution and has never received institutional athletically related financial aid from any four-year institution.
This means that the transfer can be from any 4 year school. I suspect that it is easier for an unrecruited player to get playing time if he is at a (some, not all) D3 achool. Without previous college playing time, a transfer probably wouldn't get an opportunity to make the squad at most D1 schools. So I guess this unrecruited scenario is more likely if the player is coming from a D3. Also, D3 has a relaxed attitude to recording recruiting contacts, and speaking practically, there may not be a record that shows a particular player was recruited. We know that some schools will bend the rules, and probably many people would see little ethical conflict for a D3 transfer to avoid the sitout year.