Your confusion comes from misunderstanding of what a list is. I admit that the documentation is oriented towards usage and does not explain it.
Writer is based on styles which come in several flavours:
page style defines the geometric properties of the paper sheet, i.e. size, orientation, margins, and “logical” properties like header or footer existence, background, columns, etc.
paragraph style defines the geometric properties of the rectangular area occupied by paragraph text, i.e. spacing around, first line indent, alignment, text flow (relation to surrounding paragraphs and page), background, borders, and also sets a base font for the text
character style defines overriding font attributes to change the appearance of words of sequences in a paragraph vs. what is defined in the paragraph style
When you hit
I for italics or press a toolbar button, you apply implicit character styles.
list style defines a multi-level counter and its properties level per level: nature (bullet/number/letter), formatting with an optional character style (active on the bullet/number/letter only), position, indent and alignment
As you see, this style category is badly named because it targets only a counter and does nothing directly on text. It should be named “numbering style” or equivalent.
frame style defines geometric properties of a frame, i.e. the area where images and other external objects are inserted into the document and its relation to the text
Styles are the basing tools through which you build a nice looking document. They must be combined to create common entities in publishing. One of these entities is list. A list has a paragraph style to describe textual attributes of list items and a list style for the numbering. Association of a list style to a paragraph style is done in the
Outline & Numbering tab of a paragraph style definition. This will turn the paragraph style into a “list-formatter”.
For an obscure reason, built-in paragraph styles List n and Numbering n styles are not associated with list styles and therefore behave like ordinary paragraph styles. This is why numbering vanishes when you apply one of them. Assign a list style to it and numbering will come back.
I mentioned above the list style defines a multi-level counter. When you hit
Tab at the very start of a list item, the item is promoted to the next level, while
Tab demotes it to the previous level. The multi-level counter is aware of this level change and bumps the correct number to display 2. then 2.1 then 3. if configured to display all levels.
This multi-level properties explains why you should not used different counters (list styles) for different levels. Different counters are not synchronised (they control independent lists) and instead of getting 1. 1.1 1.2 2. 2.1 2.2, you obtain 1. 1. 2. 2. 3. 4., i.e. two interleaved sequences!
In traditional typography, lists are supposed to have an homogeneous presentation. This is why a single paragraph style formats all levels. Some variation (left indent) is possible through the list style
Position properties in order to align differently the levels, but basically you remain with a single paragraph style.
With the present Writer specification, you can’t have different paragraph styles across list levels.
If you don’t want to go through the hassle of configuring your own paragraph styles for lists, you can apply a “common” list style to any paragraph with the toolbar button. The list appearance can be customised with
Bullets & Numbering. This is also one of the ways to have different paragraph styles within a list, but you don’t gain the automatic style switch between levels (because this contradicts the traditional typographic usage).
Chapter numbering is an application of the list engine. This list is special in many ways.
First its counter is an internal one, dedicated to this role, controlled by
Chapter Numbering. By default, chapters are numbered with “nothing” (yes, you can have something which is technically a list without numbers!). You must set the numbering you like.
Second, as an exception to the mechanism described above, levels do trigger paragraph style change in the Heading n family. Once again, this is related to traditional typography.
Third, Heading n paragraph styles are flagged with an outline level so that they are collected at the proper level when building the table of contents (TOC).
Since chapter numbering is probably the most widely used kind of list in Writer, this may create confusion about the paragraph style change possibility in multi-level lists, but think about traditional typography. Anyway, there are workarounds.
This answer only treats very superficially the list topic. IMHO, the list is the most difficult feature to understand and master in Writer. Some design decisions may seem surprising and somewhat arbitrary, but they allow very versatile and powerful formatting effects. The base point is to use styles instead of direct formatting which is quick’n’dirty shortcut to the many available features but in limited form.
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EDIT added a missing not in a sentence, without which the meaning was contradictory.