Steam locomotives come in all shapes and sizes, this is because their intended tasks require varying traction...
It is best to varnish the whole model.
By coating the whole model in varnish, you are guaranteed a uniform finish across the entire model.
I do not think that it is possible to apply the exact amount of varnish to the area that is going to receive the decal. You would still be left with shiny areas from the excess gloss.
It is recommended to use a gloss varnish; this will give you a nice level finish to your model. This means that it will fill in any slight imperfections in the casting or dodgy paintwork, which will also help the decals move in to position easier and help the transfers to stick.
You can still go over the gloss varnish (when dry) with a matt or satin varnish to get the finish you require.
Always varnish your models; especially if they are going to be handled a lot, it will also keep your painted model fresh for years to come.