It is pretty much an acocunting device for things like lending. Synthetic BTC is kind of like an IOU that is accounted for in the LP. So 1 synth BTC would end up being 50% RUNE and 50% BTC at all times.
The risk of synths is the same as the risk of lending itself. The protocol guarantees the syth at 1:1. So a me holding 1 synth BTC is as good as holding 1 BTC as long as THORChain is solvent / trustworthy etc. The protocol risk is the only risk. It can get way more complex than that... I haven't dove any deeper but I do know that liquidity providers bare some of the risk from derived synthetics.