Firmware has always skirted tbh. 3ds had custom firmware that allowed you to install an app that literally downloaded games from the Nintendo eshop servers for free. Nintendo eventually changed the way the eshop works to stop it but they never shut down the firmware.

Thermosphère: EL2 EmuNAND support, i.e. backing up and using virtualized/redirected NAND images

This is one of the components, which emulates your internal memory onto your SD card so you can basically sideload an entirely different Switch on your SD card. This means you can do whatever with that "entity" without messing with the system memory and files.

In practice, this seems to be used to play online via system memory, and get on Nintendo's bad side through the SD card using EmuNAND