Bill,
All modifiers placed on the edit line before a SINK, PATH, or FLAG, command are onetime modifiers that only affect tool movement for that command.
There are only four modifiers that affect tool movement when placed after a SINK, PATH, or FLAG command. These are: MaxZ, JumpZ, HopZ, and StayZ. As you stated they override the global auto-retract that appears at the top of the clipboard.
Note that these modifiers can not presently affect retract for a range command like PATH1-6.
In your sample clipboard line:
T01 PATH1 STAYZ FEED PATH2 PATH3
STAYZ keeps the tool down after PATH1, canceling the auto-retract. The auto-approach to PATH2 still applies. If the auto-approach is SKIP-FP the tool will raise a few thousandths and rapid to PATH2.
If you had written:
T01 PATH1 STAYZ FEED1/2 PATH2 PATH3
PATH2 would be cut at half the tools feed rate, after which an auto-retract would occur, then an auto-approach to PATH3 would occur, then PATH3 would be cut at normal feed rate.
The execution looks like this:
<auto-approach> PATH1 STAYZ FEED1/2 <auto-approach> PATH2