My input documents are allowed to contain nested sections. An optional
attribute marks out certain sections as significant. I want to detect
a situation in which a section which contains a descendant significant
section does not contain a subsequent INsignificant section (other
than descendants of any significant sections).

section//section[ @sig='Y' ]
                [ not(following-sibling::section[1][not(@sig='Y')]) ]

The section .D. is OK because it is within a "significant section",
but if the section it is wrapped in did not have the significant
attribute set then I want to report it, because it is INsignificant
and a descendant of a section which contains a prior significant
section.

<xsl:stylesheet version="1.0"
  xmlns:xsl="http://www.w3.org/1999/XSL/Transform">

  <xsl:template match="/">
    <xsl:apply-templates select="*"/>
  </xsl:template>

  <xsl:template match="@*|node()">
    <xsl:copy>
      <xsl:apply-templates select="@*|node()"/>
    </xsl:copy>
  </xsl:template>

  <xsl:template match="section[ not(@sig='Y') ]">
    <xsl:copy>
      <xsl:if test="
        ancestor::section[1][not(@sig='Y')]
        /
        preceding-sibling::section[1][@sig='Y']">
        <xsl:attribute name="INSIGNIFICANT">Y</xsl:attribute>
      </xsl:if>
      <xsl:apply-templates select="@*|node()"/>
    </xsl:copy>
  </xsl:template>