Why is Torchlight Frontiers now called Torchlight III? Probably because they wanted to make it clear that this is now a traditional Torchlight game and not some free-to-play MMORPG mess like it was before.
Don’t get me wrong, Torchlight Frontiers had a lot of very interesting aspects to it, like all the new character classes and even some of the new multiplayer functionality. But the always online stuff and the extreme likelihood of microtransactions meant that there was little possibility that Torchlight fans would all return to support Frontiers.
Developer Echtra Games probably sensed this during their development. In fact, CEO Max Schaefer basically just came out and said it in a video announcement. "During development, you often discover what type of product a game was meant to be and we found Torchlight Frontiers was meant to be a true successor to Torchlight I and II. Based on this and extensive feedback from our Alpha testers, we decided it was time to take the game back to its roots and model it after the classic Torchlight games that action RPG fans have come to love."
There are a lot of very good reasons to not make a Torchlight MMORPG, first and foremost being that many of Torchlight's most loyal fans loved how Torchlight has always been an action RPG that you could play entirely by yourself. Sure, you could always team up and play with a friend if you wanted, but the core gameplay of action and looting never required others to be great.
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Getting rid of Torchlight Frontiers' MMO elements isn't an entire loss for the game, either. Although some of the game's systems will have to be retooled, the characters, gameplay, and most of the game world can be retained.
Plus, MMO's are expensive! They need servers, and servers mean maintenance costs. No servers (or at least, fewer servers) means less back-end maintenance and thus a cheaper product, which makes it more likely for Torchlight to sell as a traditional "pay and play" game on Steam.
Torchlight III is exactly what fans were asking for, and now it's exactly what they'll get. Hopefully, with those same fans returning it will get enough word of mouth to also draw in even more fans.