Putting it in a very simple way, impossible to get confused:
Your switch 32gb internal memory (or 64gb, if you have an OLED) will be referred to as sysmmc. During the hacking process, you make a copy of the sysmmc into your sd card, which is called emummc.
Emummc, after properly setup, doesn't connect to nintendo servers. So all your homebrew, warez, emulators, themes, and all the cool stuff will be installed on the emummc. Nintendo can't ban you on emummc.
sysmmc is the normal switch system. You won't install any homebrew there, or you will get banned. You can buy games and play online normally on sysmmc.
When you turn your switch on, you choose if you want to use sysmmc or emummc. You can change between them.
So, tl;dr you won't be banned if you use the hack correctly and install everything in the right place.