So they are doing software BC (as exhibited in a somewhat extensive initial list of incompatibilities) but it'll take some time to get an idea of how good their 'coverage' (emulation errors & speed) is of the solution since many games are undergoing testing ...
It's a hybrid software, hardware approach. It seems they anticipated the compatibility issues from the outset. Per Ask the Developer (
Link):
I’m sure that those who already own Nintendo Switch games will be delighted that they can play them on Nintendo Switch 2. Did you already decide on this functionality when you were first planning the development of a new dedicated game system?
Kawamoto: Right from the beginning, we wanted the new system to be able to play Switch games, but back then, we were told there'd be technical challenges.
Dohta: When we first started Switch 2 development, the focus was on enhancing its performance as hardware, namely, expanding its capacity. So, compatibility was a lower priority. For example, Nintendo DS games were playable on Nintendo 3DS, and Wii games were playable on Wii U, but it was difficult to achieve the same level of compatibility with Switch 2, because the hardware design approach was different from those systems.
Sasaki: It's tricky to explain... Maybe the easiest way to understand it is that the methods used to achieve compatibility between Nintendo DS and Nintendo 3DS, and between Switch and Switch 2, are completely different.
Kawamoto: Simply put, those systems were compatible because Nintendo 3DS contained Nintendo DS hardware and Wii U contained Wii hardware. However, Switch 2 doesn't contain any Switch hardware.
Does that mean that Switch and Switch 2 aren't compatible at a hardware level?
Sasaki: Exactly. This time, we decided to take on the challenge of using new technology to run Switch games.
Dohta: If we tried to use technology like software emulators (22), we’d have to run Switch 2 at full capacity, but that would mean the battery wouldn't last so long, so we did something that’s somewhere in between a software emulator and hardware compatibility.
(22) A software program that imitates certain hardware. Commonly used to run old software on a new device and requires higher processing power than the original device.
Sasaki: This is getting a bit technical, but the process of converting game data for Switch to run on Switch 2 is performed on a real-time basis as the data is read in.
Is it like having Switch games “simultaneously translated” for Switch 2?
Sasaki: That’s right. Although we'd made the technological preparations, at first, we weren’t quite sure whether it would be able to maintain proper compatibility.