How does the web.config transformation work in situations with multiple environments and with multiple servers in each environment, and possibly multiple environments of the same level of deployment (e.g. two testing vs. one production environment). 

Specifically, is it possible to have a 'hierarchical' transformation, whereas there may be both a testing and production environment with one web.config that would apply to all of your sites.  Then, in the production environment there might be multiple servers that each have a transformation file for the unique settings required for those servers in production.  However in the testing environment there would not only be multiple unique servers in the testing environment, but multiple testing environments (say T1 and T2).  So each server's web.config would be acted on three times, the global web config would be modified by the testing environment transformation, again by the track level transformation, and finally one for the specific server. 

Such a creature would be like finding a goose that lays golden eggs.  Except, in this case, it would be golden web.configs.