Bang on for the above advice. As for products - once you've the surface varnished and ready for a decal, you can use Micro Sol and Micro Set to apply, or Vallejo Decal Medium and Decal Set - it's a two stage process that will take about 24 hours for your decals to disappear into the surface of the model and leave no raised carrier film. One helps it adhere to the surface, the other makes it melt into the surface.
When complete, you should have no silvering or shinyness under the decal. Once done, give it a blast of Klear/Varnish as Riversuir rightly says and any different surface finish will disappear.
Noel, you only need to gloss the area you are applying the decal. When you are finished, you will respray over it. If the finish doesn't match or stands out from the rest of the loco, it's only at that point you'll need to consider re-varnishing the entire piece of stock.
...and tip of the week here. If you don't have access to a model shop that has all of the above in stock, pop down to your local shop and get a bottle of clear vinegar. Same stuff as Micro Sol. Couple of cap fulls in water, in your mixing bowl, all you need. Try it on some spare first though.
R.