But what's the point of that? If I wanted my files to be on Linux I'd use Linux. I'm on Windows exactly because of things like this: the ability to use proper UI tools like Explorer to manage my files. How do I do that with WSL2?
It's not a network path, it's a pseudo-device. Windows uses the \\ UNC file paths for a lot more things under the hood than just network access. There's a bunch of rare device file paths that you'll get UNC paths for, and every folder path canonicalizes to at least one UNC path for multiple reasons.
Though it is powering that pseudo-device by a 9p-based file server under the hood, it's not a network accessible path, it's only available to the local system.
The trade-off between WSL1 and WSL2 (and you can have both on the same system and migrate distros both directions between the two) is mostly how often and where do you expect to need to deal with the 9p file server between your operations. In both versions Windows needs to use the 9p server to access Linux files, in WSL2 Linux also needs the 9p server to access Windows files.
At a high level it's much closer to a Win32 Namespace [1] that appears like a network path. UNC stands for Universal Naming Convention, there's no "Network" in the UNC abbreviation as there are many namespaces other than just network paths. Which is why the $ was chosen for the name because it is a valid Namespace character but not a valid system name in Windows, and they wanted to avoid the problem of people with systems named "wsl" suddenly unable to be accessible over the network, because Namespaces have higher priority than network paths. You could think of it as bypassing the network, but it is maybe more accurate to view it that network access is a fallback of UNC paths after all local Namespaces have been checked if they support the path.
Also, yes the current implementation backing that namespace/path is a Plan 9-based network file server, but that's an implementation detail that could change, seems to handled under the covers of the Namespace a little more directly than usual network access (including avoiding a localhost "loopback"), and probably something subject to change as WSL's needs change.
