In Visual Studio Team Services (was Visual Studio Online), I have three release environments each with an Azure Website Deploy step.
I can transform the web.config for t
Web.config is transformed during the build process, if you generate the deployment package from "Build" and then deploy it in "Release", then you cannot transform it before deployment.
You can use Web Deploy Parameterization to update the values in web.config before deployment. More information for your reference: Web Deploy Parameterization vs Web.config Transform.
And you can also use Replace Tokens task to replace the values in web.config file before deployment.