Hi Joachim,

You wrote:
- when RTS is low, both DTE and DCE must cease transmission

When RTS is low means the DTE doesn't have any data to send to DCE.
This condition will not force the DCE cease transmission.
I understand what is not clear for you. How DCE will inform DTE that want to tell him something.
And when DTE will allow DCE to send data.
The answer is quite simple.
As long as DTE keeps DTR asserted, the DTE is able to receive from DCE all the time. No matter what RTS level is.
But only for full-duplex operation.
In half-duplex operation when RTS is on, it also inhibits the received mode, thus DCE must cease transmission.

- when CTS is low, only DTE must cease transmission
Yes, correct.

- does the computer stop interpreting data from the modem when RTS is dropped?
No. Only when the computer input buffer is full, will drop the DTR (Data Terminal Ready) informing DCE it's not able to receive more data.

If it's still not clear, tell me and I'll send you a flow chart.

Regards,
Silviu