A rule gives you a way to say things about the way the outline is formatted. You can say, for example, that all the headlines at level 1 and 2 are bold. You can set fonts, indents, spacing, alignment of text.
Rules can say that all headlines are expanded when the outline is displayed, or only the first two levels of headlines. And you can have a section expanded even if its siblings are not.
If I create a rule that everthing down from here is expanded, but if the thing above me is not expanded, it's all for naught. If you are puzzled by the way expand works, keep that in mind. Try substituting color for expand and see if what you're trying works.