foo.x = foo = {n: 2};
determines that foo.x refers to a property x of the {n: 1} object, assigns {n: 2} to foo, and assigns the new value of foo – {n: 2} – to the property x of the {n: 1} object.
The important thing is that the foo that foo.x refers to is determined before foo changes.
See section 11.13.1 of the ES5 spec:
Let lref be the result of evaluating LeftHandSideExpression.
Let rref be the result of evaluating AssignmentExpression.
The assignment operator associates right to left, so you get:
foo.x = (foo = {n: 2})
The left hand side is evaluated before the right hand side.