The word emulsion refers to the mixing of two insoluble things, in this case a liquid and a gas. Since they are insoluble, they don't form a new solution rather the two parts remain distinctly separate even though frothily mixed together.
Here, the oil and nitrogen form a foamy mixture when vigorously operated in the shock. This reduces the effect of the oil passing through any valving (since some of the oil passing by is gas), and the performance of the shock is reduced.
To what degree, :shrug, but that's the theory.
A shock that never emulsifies (reservoir type) keeps more theoretical performance longer.
Damnit, AW, you modified your post to make mine look redundant!
Current: 93 R100GS, 04 XR650L
Prior: 73 CB350, 77 R100/7, 83 R100RT
I love every motorcycle I've owned and even some that I haven't.