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User logged in as JanEl
Succession doesn't need to pass from grand-father to grandson.
Of course: we've seen plenty of examples in history where a throne passed collaterally, not laterally. But the point is that in the Austrian case, succession was by the nearest legal heir. Since the Austro-Hungarian throne passed in the male-line only, with the requirement that dynasts be born of equal marriages, Archduke Karl fit that bill.
The emperor's next younger brother, Archduke Maximilian, was long deceased (emperor of Mexico as the puppet of the French emperor), having married but left no children, and the next brother (Archduke Karl Ludwig) had died in 1896, the throne passed to his nephews and great-nephews through him.
Archduke Franz Ferdinand, the eldest son of Karl Ludwig, had married morganatically with Countess Sophie Chotek in 1900, which meant that their own children -- even sons -- were ineligible to succeed. With the assassination in 1914 of the couple, which precipitated World War I, the heir was Franz's nephew Karl (the emperor's great-nephew), since his brother Otto (the second son of Karl Ludwig) had died in 1906.