Chen..one to three kata is exactly how it worked in the 'old days'.
During the formative years of Karate you can read about the old masters learning, they all spent all their time on refining stuff from one to three kata. I have been lucky enough to get training with some people who trained in this old school way and man..like night and day.
Far as the method it works just like anything else, if you actually understand the principles in the kata, you grab an opponent and you start small and focused, and then you expand and progressively get more "real". From my own perspective, Karate places a premium on simply knowing how to do a couple things well..rather than spending alot of time trying to be "well rounded". Not that being well rounded isn't good advice, I just don't think Karate is meant to be this uber-comprehensive system that addresses every single possibility.
Of course today it's great because you also have access to stuff like body armor, and some methods that the old guys didn't!
Edited by Zach_Zinn (05/28/12 12:48 PM)