You need to apply the distinct-values
function on the whole result (i. e., not to each single result item):
declare namespace xsd="http://www.w3.org/2001/XMLSchema";
distinct-values(
for $schema in xsd:schema
for $nodes in $schema//*,
$attr in $nodes/xsd:element/@name
where fn:contains($attr,'city')
return $attr
)
The query can also be written as a single XPath expression:
distinct-values(//xs:element/@name[contains(., 'city')])