Rounds continue until one candidate wins with 50% or more.
The lowest-ranked candidate is eliminated from each round.
This website demonstrates Instant Run-off Voting.
Each voter can vote for a third-party candidate as first choice without fear of "throwing his vote away".
The winning candidate is preferred by a majority of voters.
Sometimes, people vote for someone they don't like, but consider the "lesser evil". The 2016 Presidential Race is a good example. Some republicans do not care for Trump, but support him to present a united front against Clinton. Likewise, many democrats abhor Clinton but to NOT vote for her might allow Trump to win.
Instant Run-off Voting has been in use in states and cities in the USA, Australia, India, and other places for over 100 years.
More details about Instant Run-off Voting on wikipedia.
Watch an Instant Run-off Voting video.