And if the serial number is the same, it will overwrite the CI.  If there are 2 or more CIs with the same serial number, it will mark them as duplicates.  Check out this article on how we use the identification rules to find duplicates:  https://community.servicenow.com/community?id=community_blog&sys_id=3efc66a5dbd0dbc01dcaf3231f96193b

So when will it go to Rule 2? 

Just to summarise everything.

First, go to Rule 1.

1. If the serial is present and unique create a new record.
2. If the serial number is same then update the record.
3. If multiple CIs with the same thing the marked duplicate.
4. If the serial number is empty go to Rule 2

Now if we go to Rule 2 and follow the same procedure. And we will go to Rule 3 when Rule 2 fields are empty.

If the serial number is empty, just as johnnyjava said.