I'm not in a position to be able to discuss the operation of two aspect semaphore signals in the Trainz environment, as I have only Ultimate Trainz Collection. However, in terms of British real-life signalling (I hate the word 'prototypical'):
 
A signalbox controls the area around it via points and signals. The area between the first signal it controls and the last signal it controls on that line is defined as the station limits for the box (despite the fact that boxes would frequently be nowhere near a station!).
 
The section between two adjacent signalboxes, but outside of their respective station limits is known as the block section. There are/were predominantly two types of block section: Absolute block and permissive block. In an absolute block section, only one train is ever permitted to occupy the line. In a permissive block section, multiple trains heading in the same direction are allowed to enter, though each subsequent train must be stopped and cautioned. All British passenger lines have been for the best part of 125 years controlled by the absolute block method.
 
======[==Box A==]======Block section A-B======[==Box B==]======
 
 
Fig.1: Section of line showing two signalboxes, with their station limits in blue and the block sections around them in red.
 
In British semaphore signalling, there are two distinct types of signal: A distant signal and a stop signal. Many people call the stop signal a home signal, however a home signal is more correctly just a type of stop signal.
 
It was around the 1890s when the rules governing block working became 'set in stone', and for passenger lines it is best expressed as followed: "No passenger train may be permitted to enter a block section until there is at least 440 yards (a quarter of a mile) of clear line beyond the next stop signal". This is to guarantee a safe overlap distance due to driver or mechanical error during working (though in special circumstances, such working can be dispensed with).
 
__/................. __|........ __|
TRAIN1>>========================================TRAIN2>>==
.................................<--440 yards-->
 
 
Fig.2 - Allowable under British passenger working.
 
 
__/................. __|........ __|
TRAIN1>>============================TRAIN2>>==============
.................................<--440 yards-->
 
Fig.3 - Not allowed under British passenger working.
 
 
So, onto types signal within a box's station limits...
 
A typical small signalbox will have only three main signals (though any number of additional shunt or subsidiary signals may be included):
 
- Distant signal
- Home signal
- Starter signal
 
The purpose of the home signal is to protect the rear of a train within the station limits, as well as any point-work controlled by the signal box.
 
The purpose of the starter signal is to allow entry into the next block section. It is often also called the 'section signal'.
 
The distant signal is a little more complex. It should be placed at full-braking distance from the home signal, allowing the driver to safely stop a train at the home signal if needs be. A train cannot be stopped at a distant signal.
 
If the distant signal is showing a clear aspect, it means that both the home signal and the starter signal are 'off' (clear / green), and that it is safe to proceed through the station without stopping (barring a timetabled stop or a sudden emergency).
 
However, if the distant signal is showing a caution aspect, it means that the home signal is probably (and should be) at danger. This is usually because the next block section is occupied. If this is the case, the home signal may not be cleared until the train's speed has been brought under control, ready for the train to wait at the starter signal.
 
The precise number of stop signals within a box's station limits are governed by circumstance. A stop signal must always immediately protect any point-work beyond it, as well as the rear of a train waiting at a platform. This introduces some easy to understand extra naming for signals: Outer home; and advanced starter (and sometimes maybe outer outer home, or advanced advanced starter, etc., as required).
 
It can also be advantageous to have two distant signals for a signalbox - an 'outer distant' and an 'inner distant'.
 
Getting even more complex, sometimes the inner distant for a box may be placed on the same post as the home signal. In this case it is known as an 'accelerating distant'. In this situation, if the block section ahead is occupied, it is not necessary to keep the home signal at danger until the train has almost stopped, as the 'accelerating distant' gives warning that the 'starter' is still at danger.
 
It gets even more complicated when block sections are short, and so the distant for Box B is on the same post as Box A's starter, or in extreme cases, on Box A's home (with an additional Box B inner distant on Box A's starter) - this can put to use some rather involved mechanics on the ground to prevent Box B's distant signals from showing green when Box A's stop signals are at danger!
 
But amongst all this is the basic rule: The outermost distant for a signalbox cannot show green unless ALL the stop signals the box controls are showing green too.
 
Ronnie