The significant figures (also known as the significant digits) of a number are digits that carry meaning contributing to its measurement resolution.
This is what you can read on Wikipedia about significant figures before details start. I think this statement is an excellent starting point to define significant figures, because it tells you what the two ingredients for a reasonable definition of significant figures are:
- You have a number representing the result of a measurement
- You have a number representing the measurement resolution (or better: the measurement uncertainty).
Example: The result $x$ of the measurement is 2.768547 and the uncertainty is 0.048584 (we omit the units here, for ease of notation). We may write this as
$$ x = 2.768547\pm 0.048584, \tag1$$
which is scientifically perfectly correct.
In fact, this notation is shorthand for
$$ \mbox{pdf}(x) = \frac{1}{\sqrt{2\pi\times 0.048584^2}}\exp\left(\frac{(x-2.768547)^2}{2\times 0.048584^2 }\right),$$
meaning that the measurement value $x$ has a gaussian probability distribution (pdf stands for probability density function) with mean 2.768547 and variance $0.048584^2$. This distribution quantifies our uncertainty about the true value of $x$.
Still, writing the result like in eq. (1) would not satisfy some of us. The reason is that although this is perfectly correct, it is not economic. The reason is this: if the uncertainty in the number 2.768547 is 0.048584, how certain are we that the 6th digit after the decimal point is the 7? Intuitively we would all agree that given the uncertainty, we are completely uncertain about this digit. It could equally well be 6 or 8 or any other integer between 0 and 9. The same reasoning applies to the 5th, and the 4th digit. So why, is the reasoning, should we then write these digits down at all? The economic notation would be
$$ x = 2.768\pm 0.049. \tag2$$
However, some could still think this is a clumsy notation. Why don't we just agree that we approximate the uncertainty by 0.05 (i.e. by half a digit) and quote even more economically
$$ x = 2.77,\tag3$$
which then implies the $\pm 0.05$ error by convention. Our result is a notation with three significant digits.
You see that going from notation (1) to (3), we lost precision in quoting the mean and the variance of our measurement result. You also see that we made these steps in a desire to make our notation more economic, but doing that we sacrificed precision.
My plea to students is: Do not try to memorize the definitions and rules for determining significant digits like the ten commandments. Rather remember the reasoning that I gave you above, and decide on the need to be more or less economic given the specific requirements of your problem at hand.
My plea to physics teachers is: Do not overdo it with forcing your students into obeying rules for finding significant digits. Rather make them critical thinkers who can figure out themselves by reasoning how many digits are significant in their measurement results. And remember: it is more precise to quote a larger number of digits for mean and variance, but it may be less economic. What are we striving for in science?
A last remark: Given the mean and the variance of your measurement result, you can actually work out quantitatively, what the probabilities are to have specific digits at certain positions (i.e. powers of 10) in your decimal number. This is a nice exercise in elementary probability theory (which certainly every teacher of physics should do).