Inkista's answer covers the trickle-down practice very well, so we won't duplicate that here. But there is an additional consideration to consider as to why Canon and others do it.

Canon always keeps the last two generations of XXXDs current in the lineup, and in order to offer a cheaper model, creates the XXXXD, which is mostly based on the third generation back, but with a few updates to bring it in line with the current models, while leveraging as much of the older tech as possible.

More options. Canon has three entry level lines currently: The xx0D series that began with the 300D in 2003 and is currently topped by the 760D, the newer x00D series that began with the compact and lightweight 100D in 2013, and the XX00D series. They also now have a two-tiered mirrorless set in the Mx and the Mx0 series. Nikon has both a D3xx0 and D5xx0 entry level series that roughly correspond to Canon's xx0D and xx00D series. Sony also uses this strategy with different models that offer some of the same basic capability as their other models with more or fewer features as well as more models optimized for different tasks.

Faster product replacement cycles. Entry level models tend to be replaced with a much shorter product cycle than higher level models. The changes between one model and the next are usually fairly incremental but it allows manufacturers to have a new "latest new model" more often. The higher end the model, the longer it takes the two biggest players, Canon and Nikon, to replace those models. For most of the last decade the Rebels tended to be replaced every 12-18 months. Canon started out replacing their mid-grade enthusiast and prosumer DSLR cameras at about the same pace, but slowed to more leisurely product cycles in the mid-range models at around 2009. The top end pro models typically have even longer product cycles.

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Currently, Canon sells both the 700D and 750D/760D new, as well as the 1300D. But the 1300D has 18MP, like the 700D (not 24MP like the 750D/760D), and is on the old Digic4 processor, like the 600D (700D is on Digic 5, and 750D/760D are Digic 6).

The first XXXXD model, the 1000D, was concurrent with the 450D, but was essentially a 350D with a newer sensor/processor. For example, the 350D had a 7-point AF system. The 400D and 450D had a 9-point AF system. But the 1000D inherited the 350D's 7-point AF system. It was just updated to the 400D's 10MP sensor and the Digic III processor.

In the timeline you mentioned, it's color-coded for processor generation. Look again, and you can see the trickle-down effect.

The vast majority of the DSLR market in terms of units sold over the past decade or so has been the entry level DSLR market. Even in terms of gross revenue there are enough units of $400-800 entry level DSLRs sold to swamp the gross revenue generated by the $6,000-$7,000 flagship models from the same manufacturers. Manufacturers, including Canon, have used a couple of strategies to try and maximize their share of the entry level/lower priced segment of the market: