These are direct "dumps" or clones of a physical game cartridge. 1. Superior Storage Efficiency
Physical cartridges (XCI) are manufactured in fixed sizes (e.g., 8GB, 16GB). If a game is smaller than the cartridge size, the remaining space is filled with "padding" or "garbage" data.
U1 vs U3 MicroSD cards & XCI vs NSP content. : r/SwitchHaxing
These are digital installation packages, identical to what you would download from the Nintendo eShop .