Instead of thinking to combine the rectangles, I would rather think of building up to a rectangle with a size of 1200w x 700h.

You are not changing either side of the rectangle, you are cutting one rectangle into 2 new rectangles (with the fraction formula) which when they both placed next to each other they should have the size of the original rectangle (I am using level 2 as an example) which will replace the original one.

To answer your question, the reason why you have 3 rectangles in your array list might due to using the same array list which you initially have the original rectangle placed inside the array list and you add to that array list.

Like Keenan mentioned in class, you are returning an array list with bunch rectangles, which when you use a for loop to display the rectangle, you should have 2 ^ (level - 1) rectangle(s) that builds up to 1200w x 700h

I will recommend you to draw a simple binary tree of the recursion method output on paper or somewhere you like like Keenan showed in the class to visualize the recursion method and think backward.

Although I've been to Keenan's office hour many times and ask him to explain the assignment, actually this assignment is quite simple once you figured out the sequence and logic behind it. 

My answer may not the best, use my answer as a reference for now and wait for a better answer and explanation from Keenan.