Template based XSLT is usually used in a recursive way... along the lines of "whenever you find an element like this, do this with it", and then nested elements cause templates to be applied, etc...
The simpler form you're referring to is often called "fill in the blanks" XSLT, which is very much like a form letter used with a mail merge. You create lots of fixed (static) content, then insert xsl: elements for stuff that varies.
Here's an example of the latter, which writes a
Java bean to represent state that's stored in an XML file: