$slug has to be unique global to every taxonomy, meaning that one
taxonomy term can't have a matching slug with another taxonomy term. Each
slug has to be globally unique for every taxonomy.
The way this works is that if the taxonomy that the term belongs to is hierarchical and has a parent, it will append that parent to the $slug.
If that still doesn't return a unique slug, then it tries to append a number until it finds a number that is truly unique.
The only purpose for
$term is for appending a parent, if one exists.