The marks from the external HSC exams are used to standardise the internal marks across schools. This means that if students of some school usually get marks of around 70 in the internal assessments, while they received marks of around 90 in the external HSC exams, then after moderation and scaling, the internal marks of the students will be around 90s as a means to take into account various variables which played a role in the difference between the internal and external marks.
With regards to your first interpretation, so if your cohort does better on the external HSC exams than the internal assessments, then it's true that your final reported internal mark will be higher than the internal mark your school gives you (since in this case, it means that your internal assessments were relatively harder than the external HSC exams). (Consider another case; if your teachers gave everyone 100 as their internal marks, then everyone's reported internal mark will be their reported external mark.) You can't really say that selective schools boast higher results due to this process, but rather that they benefit from being selective. Ideally, if a student works just as hard in a public comprehensive school, they should also do just as well (I think this is generally the case; I went to one), which naturally leads to your section interpretation: it is indeed the case that the point of moderation is to make it so the reported internal marks of students across schools can be compared (i.e. the variables causing discrepancies have been reasonably controlled).
[If anyone wants to correct me, go ahead; it's been years since I gave this stuff some serious thought.]
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