Couple things there.

There are Virtual Game Cards, purchased and downloaded digitally from the eShop. These can now be traded, sold, gifted etc. to other friends, which was not previously possible. (This could possibly require an NSO subscription, but I’m not clear if that’s true at all.)

There are physical game cartridges, which contain the actual game on them, and (from what I’ve heard) most games will be distributed this way.

Then, there are also physical carts that contain only the virtual game license file, thus that you have to possess the physical cart in order to download or play the game. Apparently, there are Switch 1 games like this already, but they are rare.