Notice that the failure function T[i] does not use i as an index, but rather as a length. Therefore, T[2] represents the length of the longest proper border (a string that is both a prefix and suffix) of the string formed from the first two characters of W, rather than the longest proper border formed by the string ending at character 2. This is why the maximum possible value of T[2] is 2 rather than 3 - the substring formed from the first two characters of W can't have length any greater than 2.
Using this interpretation, it's also easier to see why T[4] is 0 rather than 1. The substring of W formed from the first four characters of W is ABCD, which has no proper prefix that is also a proper suffix.
Hope this helps!