2 people - we'll call them Caster and Target.
[Normal order of events]
Round 1: *Target wins initiative*
-(Target): readies an action to counterspell against Caster.
-(Caster): begins to cast a spell, triggers Target's readied action.
-(Target): goes thru the normal counterspell process... makes his spellcraft check or just uses Dispel Magic, etc. Assume all is successful.
-(Caster): has his spell countered, curses profusely.
[Proposal of Caster having Reactive Counterspell]
Round 1: *Target wins initiative*
-(Target): readies an action to counterspell against Caster.
-(Caster): begins to cast a spell, triggers Target's readied action.
-(Target): goes thru the normal counterspell process... makes his spellcraft check, etc.
-(Caster): uses his Reactive Counterspell feat to counterspell Target's counterspell, but sacrifices his next round's action to do so.
Round 2:
-(Target): casts a spell at Caster.
-(Caster): sits on his thumb, unable to do much because he used this round's action for his Reactive Counterspell earlier.
3 people version - names we'll use are Master, Apprentice, and Target.
Round 1: *Target wins initiative, followed by Apprentice, Master goes last.*
-(Target): readies an action to counterspell against Master.
-(Apprentice): readies an action to counterspell against Target.
-(Master): casts a spell, triggering Target's readied action.
-(Target): goes thru the normal counterspelling process... makes his spellcraft check or just uses Dispel Magic. Assume all is successful. Begins to cast his counterspell, triggering Apprentice's readied action.
-(Apprentice): goes thru the normal counterspelling process... makes his spellcraft check or just uses Dispel Magic. Assume all is successful.
-(Target): has the spell he intented to use to counterspell with, countered.
-(Master): gets his spell off without hinderance, magics Target into next week.
The real chestnut here is that in the 3 person scenario, it really all comes down to the initiative order. Target and Apprentice both HAVE to go before Master, otherwise the whole thing is shot to hell. Apprentice doesn't necessarily have to go before Target, but he does have to go before Target has had a chance to cash in his readied action.
