After some tests I found that the damage increase of Concentrated fire rank 2+3 is a single increase and does not become stronger with each consecutive hit.
I killed the Brotherhood Paladin-Commander in front of Boston airport with VATS-headshots under different conditions
1) No Concentrated fire -> 13 shots till dead. Healthpool closer to 12 shots (with a few pixels remaining after the 12th)
2) Concentrated fire rank 2 -> 11 shots till dead, Healthpool ~ 10.5 shots big
3) Concentrated fire rank 3 -> 10 shots till dead
each test was repeated at least 3 times.
-> Conclusion: The damage effect works, it is a one-time increase however and does not become stronger with consecutive shots.
Imho this is intended behavior and the description of the perk rank 3 is chosen to distinguish between 'gaining accuracy' and 'doing more damage', though arguably, it is not very clearly worded.
"In V.A.T.S. every attack on the same body part gains +20% accuracy and does 20% more damage"
I'm not sure how this could be worded more clearly in the rank 3 description, but minimum I think the rank 2 description should be changed to read:
In V.A.T.S. every attack on the same body part does 15% more damage.
Forum thread here
Issue Data
Issue #31621: Concentrated fire rank 2 + 3 description (and effect) unclear