Some info from Coin Facts. 

The 1936-D 3-1/2 Legs variety was created by overpolishing of the reverse die, resulting in loss of detail on the front foreleg (see image comparisons). The 1937-D 3-Legged Buffalo was created in the same manner, but on a different die where the polishing was more severe. According to the Cherrypickers' Guide, fewer than 40 examples of the 1936-D 3-1/2 Legs are known. However, as of April 2011, PCGS had already certified 134 examples!

Sources and/or recommended reading: Cherrypickers' Guide by Bill Fivaz and J.T. Stanton, Fifth Edition, Volume 1