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There are two things going on here.
The first is that yes, more connections causes more opportunities for the plugs to slip. So you can get short circuits or even arcing that can start a fire.
The second is that the wire in the cord has a certain rating on it. Many of those cords do not use 12 (20 amp) or 14 (15 amp) gauge wire; so, they're not rated for the full capacity of the wire in the wall. The breakers are sized to protect the wires in the wall, they don't know anything about the things plugged into them. So what can happen is you plug too much into the extension cord (particularly if it's a power strip) and the load on the extension cord is not enough to trip the breaker (because the walls are fine) but it's enough to overload the extension cord wire. In other words, the extension cord can start getting so hot it melts and possibly arcs up as the insulation fails.
You can have a fire from overloading a single power strip in just the same way. However, the more you chain together, the more likely you are to overload the power strip.
Ideally, you just think about what you're doing... But historically the easy answer is just to tell people not to chain things.
In short it's not about the distance, it's about the insulation and quality of the wire itself along with the number of connections.
Awesome answer - thank you!!
Although I guess a more general question - why aren't all power boards and extension cords mandatorily fitted with their own circuit breakers/overload protection circuits? I guess it's cheaper to just tell people never to daisy chain, but at the same time, when you factor in overall costs incurred by anybody (or insurance companies, etc) from people unintentionally overloading them and causing them to melt and burn down houses, wouldn't it be in everybody's best interests to raise the price a few dollars and include a resettable overload protection system?
Technology Connections made a 25 minute video about American extension cords and why they’re dangerous, if you want to watch a long form answer.
Edit: oops, just saw I’m late to the party with this video
iirc British plugs do have a fuse built in to every plug, but they are also the only ones who do that
Some power systems do actually put a fuse in the extension cord... I think it's the UK that does this. Basically every power system other than the US uses different (safer) plug designs that solve the arcing problem.
In practice daisy chaining rarely causes a serious problem and it makes things more expensive so it never really became a thing that was legislated or common within the US. Similar to how the plug designs themselves rarely cause a problem so it hasn't made sense to actually change them.