Global Variable: This variable is available everywhere in the xsl stylesheet. This variable should only be the child of <xsl:stylesheet> element.

Local variable: This variable is only available where it is declared.

See Below Code:

<?xml version="1.0" encoding="UTF-8"?> 
<xsl:stylesheet xmlns:xsl="http://www.w3.org/1999/XSL/Transform"
                 xmlns:xs="http://www.w3.org/2001/XMLSchema"
                 exclude-result-prefixes="xs"
                 version="2.0">
  <xsl:output omit-xml-declaration="yes"/>

  <xsl:variable name="a" select="5"/>     <!-- Global Variable -->

  <xsl:template match="/">
     <xsl:variable name="b" select="2"/> <!--Local Variable -->
     <xsl:value-of select="$a+$b"/>      <!--Addition of 'a' and 'b' -->
  </xsl:template> 
</xsl:stylesheet>

The Output of the above code would be: 7

There are two ways to define a value to the variable like:

By xpath expression in the @select attribute of <xsl:variable> element like:

<xsl:variable name="apple" select="'RED'"/>

OR

By the content of the <xsl:variable> element like:

<xsl:variable name="apple">RED</xsl:variable>

To call a declared variable use $ Sign with variable name, like in above code '$a'