All Linux is is an OS (Operating System) similiar to Windows but is open source (anyone can edit it).
Running Linux on an xbox gives you a few more options, like surfing the web from your xbox, email, running a web server, playing games, etc...
No, it does not hinder your ability to use original dvd games, depending on how you install Linux though, it will determine how you can run apps/etc from your e:/f: partitions.