Maybe also specify how the accompanying real-world contract can be found on this domain, with the hash of the text of this real-world contract to be used as 'contract hash' in the issuance ?

This way wallets will be able to locate the real-world contract governing the off-chain conditions, verify that it is indeed referenced in the issuance, and display the contract to the user

We mention the use of the 'domain' field a bit later under 'Registry rules' -- it's only used to prove the identity of the asset issuer. The use of "contract" here is not referring to a legal contract, but just to this structure with the parameters of the asset in it. (There is some discussion below of how these "contracts" are distributed.)

If the issuer wanted to add a reference to some other document, they would do that by adding another field, but it would be up to them to define the meaning of it.

Why not define the standard way to do this, especially if there is a need to pull some file from that domain to prove the identity of the issuer ?

and if standard way is defined, then there's no need for adding another field

What is the domain validation rule exactly ?

Added more info!

Domain names should be ASCII, punycode etc to mitigate https://en.wikipedia.org/wiki/IDN_homograph_attack