There's only one variable $DoesNotContainChildElement so a for-each will only yield value 1 for position().
You can check that by running the following:
<xsl:for-each select="$x">
<pos1><xsl:value-of select="position()"/></pos1>
</xsl:for-each>
<xsl:for-each select="$x/*">
<pos2><xsl:value-of select="position()"/></pos2>
</xsl:for-each>
Where x is a (node-set type) variable.
The result will look something like
<pos1>1</pos1>
<pos2>1</pos2>
<pos2>2</pos2>
<pos2>3</pos2>
<pos2>...</pos2>
Adding <xsl:copy-of select="."/>
will result in the output of the entire variable contents in case of the first for-each above, whereas for the second for-each it will result in the output of each sub-element of the variable one-by-one.
The second form is the one to use if you wish to output only selected sub-elements.
The same holds when you first apply the node-set function to change an rtf into a node-set.