A virtual private Network (VPN) extends a private network across a public network, such as the Internet. It enables a computer to send and receive data across shared or public networks as if it were directly connected to the private network, while benefiting from the functionality, security and management policies of the private network.

Source:http://en.wikipedia.org/wiki/Virtual_private_network

VPNs just allows you to mask your external IP address. I don't see how it would reduce the risk of getting banned on your modded console, but if you were to turn on your VPN every time you go online with your modded console, then you will greatly reduce the risk of getting banned on your retail one since your retail's external IP address will always be different.

A Virtual Private Network (VPN) is a network technology that creates a secure network connection over a public network such as the Internet or a private network owned by a service provider. Large corporations, educational institutions, and government agencies use VPN technology to enable remote users to securely connect to a private network.

NYXeX1 wrote Saw something below that said to use a VPN to reduce the risk of getting banned on a modded console.

it will do exactly that instead of connection to your home wifi youll connect to a different Server host (vpn) which will keep your home wifi out of watchfull eyes and keep you from being flagged on your home wifi. When they ban you it will ban that specific ip from the vpn and wont affect your home connections.