WSL1 used a concept called a pico process [1] and the pico driver that is associated with the process is forwarded the syscalls to translate to the required NT APIs. WSL2 is a VM running through Hyper-V but integrated in a way that mostly looks like a normal process. It was introduced to improve filesystem performance (on the Linux mounts) and avoid having to translate and maintain the syscalls required by Linux [2]. The tech behind WSL1 is quite fun but WSL2 certainly has better compatibility and aside from FS performance between Linux and Windows is mostly a positive.

[1] https://learn.microsoft.com/en-us/archive/blogs/wsl/pico-pro... [2] https://devblogs.microsoft.com/commandline/announcing-wsl-2/