Code:
[CustomAction]
        static ActionResult ReplaceAddress(Session session)
        {
            ActionResult res = ActionResult.Success;
            session.Log("ReplaceAddress::Begin");
            try
            {
                string siteName = session["WEB_APP_NAME"];
                string fileName = session["INSTALLDIR"] + @"\Web.config";
                string newString = "http://" + Environment.MachineName + "/" + siteName + "/";
                string strOldFile = File.ReadAllText(fileName);
                string strNewFile = strOldFile.Replace(@"http://localhost/Web1/", newString);
                File.WriteAllText(fileName, strNewFile);
            }
            catch (Exception ex)
            {
                res = ActionResult.Failure;
                session.Log("ReplaceAddress::exception: {0}", ex.Message);
            }
            return res;
        }

 <Binary Id="WebAppCA"  SourceFile="$(var.CAFileLocation)" />
    
    <CustomAction Id="ReplaceAddress"
                  BinaryKey="WebAppCA"
                  DllEntry="ReplaceAddress"
                  Execute= "commit"
                  Return="ignore" />    

  <InstallExecuteSequence>
    <Custom Action='ReplaceAddress' After="InstallFiles">NOT Installed</Custom>
  </InstallExecuteSequence>

  <InstallExecuteSequence>
    <Custom Action='ReplaceAddress' After="InstallFiles">NOT Installed</Custom>
    <Custom Action='ConnectDbAction'      After= "InstallInitialize">NOT Installed</Custom>
  </InstallExecuteSequence>

session["LOGHACK"] = @"2";

    <CustomAction Id="ReplaceAddress"
                  BinaryKey="WebAppCA"
                  DllEntry="ReplaceAddress"
                  Execute="commit"
                  Return="ignore" />   

    <CustomAction Id="ReplaceAddress"
                  BinaryKey="WebAppCA"
                  DllEntry="ReplaceAddress"
                  Execute="immediate"
                  Return="ignore" />   

<?xml version="1.0"?>
<configuration>
  <appSettings>
    <add key="MyKey" value="XXX"/>
    <add key="AddedDuringInstall" value="XXXThis text was added during installation."/>
    <add key="MyKey2" value="zzz"/>
  </appSettings>
  <connectionStrings/>
...

<Component Id="Web.config" Guid="2ED81B77-F153-4003-9006-4770D789D4B6">
<File Id="Web.config" Name="Web.config" Source="$(var.SolutionDir)SimpleWebApp\Web.config" DiskId="1" KeyPath="yes" />

<util:XmlFile Id="AppSettingsAddNode" File="[INSTALLLOCATION]Web.config" Action="createElement"  ElementPath="/configuration/appSettings" Name="add" Sequence="1" />

<util:XmlFile Id="AppSettingsKeyAttribute" Action="setValue" File="[INSTALLLOCATION]Web.config" ElementPath="/configuration/appSettings/add" Name="key" Value="AddedDuringInstall" Sequence="2" />

<util:XmlFile Id="AppSettingsValueAttribute" Action="setValue" File="[INSTALLLOCATION]Web.config" ElementPath="/configuration/appSettings/add" Name="value" Value="This text was added during installation." Sequence="3" />
</Component>

<?xml version="1.0"?>
<configuration>
  <appSettings>
    <add key="AddedDuringInstall" value="This text was added during installation."/>
    <add key="AddedDuringInstall" value="XXXThis text was added during installation."/>
    <add key="MyKey2" value="zzz"/>
  <add/></appSettings>
  <connectionStrings/>
...