Hmmm.... Good question for new programmers!
The style guide is right, more than 2 or 3 nested for loops should raise red flags, especially if they are based on the same controlling variable as in the example from the image (from the style guide).
The important thing here is to realize that there's a difference of asking whether it should be done vs. it should never be done.
If you have a really good, valid reason for nesting for loops 3 or more levels deep, then go ahead and do it. Deep nesting usually isn't necessary and is often a bright red flag that the code can be simplified, but sometimes it really is appropriate. So, if you've written deep nested loops like that, then know to look it over carefully to see if it can be simplified. Have someone else look at it too. Maybe they see something you don't.
For example, Mario uses nested loops. In fact, the more efficient versions use 3 for loops, but not 3 levels deep. Later psets may or may not need more depth, like.... oops! SPOILERS!!! ;-)
Now, about those control vars. Yes, it's common to use a single letter variable name. But, if the code is getting complex, then more descriptive names become appropriate so that their use can be understood. The more complex, the more important this becomes. Ultimately, it's up to you to determine how much clarity there is in the code and what needs improvement before you release it!
Finally, there's a variation on this. If there's ONE for loop with multiple control variables, that's another red flag that needs to be checked. Again, it doesn't mean that it should never be done, but as the number of vars increases, complexity goes up geometrically (IMHO). Perhaps some of the vars can be taken out of the for loop setup and handled independently. I've seen a trend of code being written with 2, 3 or more vars in a single for loop setup. The vast majority of them have not only been too complex, but have generated logic errors. I definitely feel that 2 control vars in a for loop is a red flag and 3 or more is a very loud RED ALERT alarm!
So yes, deep nesting is a red flag that needs to be examined and a decision needs to be made whether it's justified. But it's not automatically wrong to do.
If this answers your question, well, you know what to do. ;-)
(people keep quoting me. It's embarassing!)