Before answering your question, maybe a slightly more practical example will be useful. Suppose that I want to know how tall you are. By visual inspection - as it's often formally called - I can easily determine that your height is about 2 m. But of course, it can be 1.90, or 1.84. In fact, just by looking at you it would be crazy to pretend that I know your height to even within 10 cm. Now I could specify the result of my "measurement" as 2.000 m. But that would imply that I know that it is 2 m to great accuracy, while really all I can say is that it is "somewhere between 1.5 m and 2.5 m - well, 2.5 is a bit high but it could be even 2.20 - in any case it will round to 2 m." This is what I express by saying "2" instead of "2.000".
Now let me get my measuring tape which has a cm scale with small ticks between the integer values, and measure it more accurately to be 1.84 m. Now of course, I could again say "You are 2 m tall", but that would give less information than I actually have. On the other hand, I could interpolate between the marks and say "You are 1.843 m tall". But of course my interpolation is a bit uncertain - my eye is not good enough to distinguish between 1.8424 and 1.8437. So stating the number as 1.843 would again fool you into thinking I measured it more accurately than I did. Basically, by reading off the number on a 0.5 cm scale, all I know that it is between 1.835 and 1.845. All these values (possibly with the exception of 1.845 exactly) round to 1.84. So I should say 1.84; in contrast 1.840 would imply that I actually measured it up to mm.
Now when you add or subtract values, you have to take this accuracy into account. Suppose I also measure my own height in the first way - I will also find 2m! Subtracting the two gives 2m - 2m = 0m. This does not mean, of course, that we have the same height. We do have the same height within the accuracy of our measurement - i.e. we are equally tall up to a difference of +/- 1 m. To sketch a "worst-case" scenario: a more accurate measurement may reveal us to be 2.49 m and 1.51 m respectively, giving a difference of 0.98 m. In contrast, if I would have measured us both to be 1.84m in 2 significant digits, the biggest difference we could have would be between 1.835 and (slightly under) 1.845, so 0.01m.
Now of course, when I report this difference, again I have to take this into account. In the first case, where I only have 1 significant digit in the measurement, I cannot report the difference between the measurements more accurately than that, so I should not pretend I can and write 0.0 m.
Even if I would know from my ID that my height is 1.84 m, but I only know yours in 1 significant digit as 2m, I could not say that the difference is 0.16m. After all, this would imply that the actual difference is within 0.005m. This would be true if my more accurate measurement turns out to give 1.84 for you as well, but you could be 2.4m, for all I know - the "2m" does not give me more information. Therefore, even if I would know my height up to a fraction of a centimeter, knowing yours in one significant digit will still force me to give a less accurate result. A little thought shows that the "worst" case here is you turn out to be 2.49m or 1.51, giving a difference of about 0.34m either way. So in any difference I calculate, there is a (big!) uncertainty even in the first decimal, meaning I cannot give the difference more accurately than meters (again giving 2 m - 1.84 m = 0 m, with the right significance).Yes.Yes, otherwise you should either round it correctly - if you know that it is that much bigger than .234670 - or you should give it in fewer significant digits.You're not entirely right, and I think you are worrying too much about the edge case. The "rounding 5 up" rule - whichever one you use - is only relevant if the number ends in ...5. If the actual value were ...50001 you would round it up anyway, and if it were ...499990 you would round it down. So either the error would be .00000049999... (repeating) or 0000005 - and these numbers are the same (by the famous 0.9999... = 1).