faileN's answer is correct in theory. Without the ob_flush()
the data would stay in PHP's buffer and not arrive at the browser until the buffer is implicitly flushed at the end of the request.
The reason why it still doesn't work is because the browsers also contain buffers. The data is now sent out correctly, but the browser waits after getting "one" before it actually kicks off rendering. Otherwise, with slow connections, page rendering would be really, really slow.
The workaround (to illustrate that it's working correctly) is, of course, to send a lot of data at once (maybe some huge html comment or something) or to use a tool like curl on the command line.
If you want to use this sending/sleeping cycle for some status update UI on the client, you'd have to find another way (like long-polling and AJAX)