They're essentially like a sort of warning before the real punishments, bans and demotions, come into play.
Traditionally, in the days pre the upgrade to vBulletin 3.7, this functionality was provided by a user created add-on. Back then, more than one points lost you your signature and ability to edit your posts. Three points resulted in a two day demotion (Member to Junior Member, Senior Member to Member) and any further active points resulted in the same thing happening against. Points lasted thirty-one days before they expired.
Nowadays, with the new system which is built into the board, I don't quite know what goes on. It's not as exposed as it used to be, each user originally having their own warning point page which gave a little explanation as to the nature of the system. Something similar now probably only appears if you ever have had warning points. As far as I know, us AMs aren't able to issue punishments, which also provides me at least with a limited view into the system.
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