Make Web.config transformations work locally
if you want to transform a config file without using the Web Publishing Pipeline then you just use the TransformXml task manually. I've written a detailed blog post on this at http://sedodream.com/2010/04/26/ConfigTransformationsOutsideOfWebAppBuilds.aspx, but here are the high lights:
<Project ToolsVersion="4.0" DefaultTargets="Demo" xmlns="http://schemas.microsoft.com/developer/msbuild/2003">
<UsingTask TaskName="TransformXml"
AssemblyFile="$(MSBuildExtensionsPath)\Microsoft\VisualStudio\v10.0\Web\Microsoft.Web.Publishing.Tasks.dll"/>
<Target Name="Demo">
<TransformXml Source="app.config"
Transform="Transform.xml"
Destination="app.prod.config"/>
</Target>
</Project>
Here I manually transform the app.config file using transform.xml file and the destination file is app.prod.config.
One thing that you mentioned was being able to do transformation locally when running the app. The reason why we only perform the transform on package/publish is because if we transformed web.config itself then next time you debug your app the web.config gets transformed again. So for example if in your web.debug.config you have the transformation to add a value to config, everything is OK the first time you add that but then the next time your run/debug your app it will get added again. So it is best to avoid that.
If you are using Visual Studio 2015, you can just right click on the transform of the desired environment, and click "View Preview" ... It will then generate the transform, and you can copy and paste that into the normal Web.config file for debugging purposes. Just don't commit it!
If you are using Visual Studio 2013, you can install the SlowCheetah - XML Transforms extension