That's half true/wrong.
You don't need to install them on your Wii.
You can install them on an external device (SD or USB) and play them using loaders, the same way as you can play Wii game backups from SD or USB.
There are two different method:
- very old : uLoader allows you to play the .wad files directly (it's using it's own method).
- new one : Emulated NAND.
You can create a copy of your Wii's memory on SD or USB (or create a clean new one if you prefer), and you use a method to make the wii read that folder (the fake Wii memory) instead of it's own internal memory. It's an emulated system memory (the NAND chipset). You can install a lot more channels on this EmuNAND because you are not limited to 512MB anymore. You can have up to 2TB of emulated space.
There are different methods to create or dump your wii memory, then you need to add/install new channels to it. It can be done by the Wii (using loaders, or installers), or by PC program.
After you have your EmuNAND ready, there are different methods to launch a game from it:
- Emulate the Wii from the start, using Sneek : you boot the Wii and everything is done in the emulated NAND. It's like you you were on another Wii. Everything on your real Wii is left unread/untouched.
- Emulate the Channels on a launch basis : you use a cIOS and an USBLoader to redirect only the NAND access when launching the game. It has less compatibility but works fine (~90%)
