Not entirely true, either they have attempted to simplify the process, they have completely mislead you, or you have misheard/misunderstood their explanation.
The process that relates your school marks and the HSC exam marks is called
Moderation. Do spend time trying to understand the contents in the link.
I think misconceptions should be cleared up first. The main misconception is that the n'th highest ranked student in the cohort receives the n'th highest exam mark for their assessment mark.
That is not true, with the exception of if you are ranked first or last. This is where moderation is important. Why is moderation important? Well, your school assessments may not reflect the standard of the state, so BOS needs just 1 common assessment for everyone - that is the HSC exams.
At school, you will have sat assessments and each have a certain weighting. This gets added up and you and everyone else has some raw school percentage/mark.
You then sit your HSC exams and anyone can achieve any mark - it is your own individual performance regardless of how well or poorly you did at school.
These marks will have a highest and lowest (obvious exceptions are if everyone gets the same mark, or there's only 1 person in the cohort...) and these marks form the bounds for your moderated assessment mark (as opposed to your raw school mark).
What BOS does is they sort of transpose your raw school marks to fit within these bounds. To do so, the assessment mark of the student who is ranked first is the highest exam mark of any student, and vice versa for the student ranked last.
Then all your raw school marks need to be proportionally placed within these bounds. The relative gap between you and first or last stays the same. If your raw school mark was one-third of the range of school marks, then it will roughly be one-third of the range of the moderated assessment marks. This does mean being 2% behind first place is better than being 20% behind first place - your school marks do matter, your rank not so much. This now forms your moderated assessment mark.
You keep your HSC exam mark, and the above assessment mark is effectively calculated. The marks are "aligned" in accordance to the standards - this is where BOS says "the mark or performance that is between a Band 5 and Band 6 will receive a mark of 90 (and so on down to Band 1)". The average of these marks becomes your final HSC mark.
BOS gives UAC your raw HSC exam mark and your moderated assessment mark, both before "aligning". Your raw HSC exam mark indicates your performance in the state; your moderated assessment mark indicates your rank in the state (but it's not like 1st, 2nd, 3rd etc.; it's an actual mark as described above).
The average of these marks becomes your "raw HSC mark". UAC then scales these marks using their formulas and calculations. Then they determine your best 10 units (inclusive of 2 units of English), adds these up, forms your "aggregate", then ranks you from 99.95 down to 0. This is your ATAR.
As explained above, your HSC exam mark (or what I believe you are describing as your external test) is your own performance that contributes to half of your HSC exam mark. This also is used when determining your "raw HSC mark" for your ATAR.
Therefore it is paramount that you do as well as possible, individually and as a cohort. As a cohort means if ALL HSC exam marks fall within say 95 and 85, then ALL moderated assessment marks fall within 95 and 85. That means you cannot do worse than a final HSC mark of 85. Even if you are 20% behind first place, that gets "squeezed" to ensure you fall proportionally between that 95 and 85.
