How to resolve this 'XML Validation: Declaration not found for element' error?
An XML Schema Collection for that particular piece of XML would look more like this:

CREATE XML SCHEMA COLLECTION XS_ProductDoc 
AS
'&lt;xs:schema attributeFormDefault="unqualified" elementFormDefault="qualified" xmlns:xs="http://www.w3.org/2001/XMLSchema"&gt;
    &lt;xs:element name="Product"&gt;
        &lt;xs:complexType mixed="true"&gt;
            &lt;xs:sequence&gt;
                &lt;xs:element name="ProductID" type="xs:unsignedByte" /&gt;
                &lt;xs:element name="ProductName" type="xs:string" /&gt;
                &lt;xs:element name="SupplierID" type="xs:unsignedByte" /&gt;
                &lt;xs:element name="CategoryID" type="xs:unsignedByte" /&gt;
                &lt;xs:element name="QuantityPerUnit" type="xs:string" /&gt;
                &lt;xs:element name="UnitPrice" type="xs:decimal" /&gt;
                &lt;xs:element name="UnitsInStock" type="xs:unsignedByte" /&gt;
                &lt;xs:element name="UnitsOnOrder" type="xs:unsignedByte" /&gt;
                &lt;xs:element name="ReorderLevel" type="xs:unsignedByte" /&gt;
                &lt;xs:element name="Discontinued" type="xs:unsignedByte" /&gt;
            &lt;/xs:sequence&gt;
        &lt;/xs:complexType&gt;
    &lt;/xs:element&gt;
&lt;/xs:schema&gt;'


The reason your code does not work is because your XML does not contain any namespaces, whereas the original AdventureWorks XML does.  Learn more about XML Namespaces here.