How I understood this is, is that your internal mark becomes what you get in the HSC Exam according to your ranking, for example:
Student A ranked 1st
Student B ranked 2nd
Student C ranked 3rd
In the HSC Exam, the students get the following exam marks:
Student A: 92
Student B: 94
Student C: 88
The internal assessment mark of student A will be 94, because they are ranked first, even though they didnt get the highest exam mark. And even though student B got the highest exam mark, they will get the mark obtained by student A, and this will become their assessment mark.
Basically, assessment marks mean Nothing; it's your rank that counts.
Student C wouldn't be affected by moderation, in this case.