XSLT is a programming language, expressed using XML syntax. This is not for the benefit of the computer, but rather for human interpretation. Before the stylesheet can be processed, it must be converted into some internal machine-readable format. This process should sound familiar, because it is the same process used for every high-level programming language. You, the programmer, work in terms of the high-level language, and an interpreter or compiler converts this language into some machine format that can be executed by the computer.
Interpreters analyze source code and translate it into machine code with each execution. In this case of XSLT, this requires that the stylesheet be read into memory using an XML parser, translated into machine format, and then applied to your XML data. Performance is the obvious problem, particularly when you consider that stylesheets rarely change. Typically, the stylesheets are defined early on in the development process and remain static, while XML data is generated dynamically with each client request.
A better approach is to parse the XSLT stylesheet into memory once, compile it to machine-format, and then preserve that machine representation in memory for repeated use. This is called stylesheet compilation and is no different in concept than the compilation of any programming language.
XSLT processors implement stylesheet compilation differently, so JAXP