It will kill a mapping in the memory to the properties. ADB checks whether it has root permissions. This neuters the property service (aka psneuter). When you reboot, it should be fine. The is because /dev/ashmem/system_properties isn't an actual file you're deleting. You're deleting a mapping. It's recreated when the system reboots (really when system_properties is initialized again.)
The problem with the G2 is that you can't inject Superuser because the way objects are written to /system in the G2.
The root method for all other phones is:
Neuter property service
ADB into device with root
Install su and superuser into /system
Reboot (to fix property service)
With the G2, on step #4, you'll lose what you did in step #3 and won't have root. (since writing to actual /system is constricted by the mmc).
So what you do is
Neuter property service
ADB into device with root
Downgrade
Since rebooting the device loses your root, then you simply downgrade instead. This goes around trying to fix the mmc issue and just reflashes a rom that'll play nicer with /system access.
If you understood how ashmem worked, you'd understand that you're not permanently crippling anything. What Scott is saying in his source code is: "We have root in G2, but we don't have anything that relies on the property service like the DNS. But that should be okay, since we don't need it to downgrade." Remember that rebooting isn't an option for rooting the G2.