[moving this over to docbook-apps where such matters are discussed]
The "depth" here is the depth of nesting of emphasis elements. In a
regular emphasis element, the text is italic. If you put an emphasis
inside an emphasis, then that text should be normal within the italic. The
mod 2 alternates them.
The dot.count template is a clever trick to compute the number of
ancestors. The dots it is counting are not in the text, but in a number
generated using xsl:number with level="multiple". This generates a number
like 1.1 for a nested emphasis and 1.1.1 for doubly nested. It counts
those dots to get the depth of nesting to use in the mod expression.
Bob Stayton
Sagehill Enterprises
DocBook Consulting
bobs@sagehill.net