How is this partitioning implemented?

Local “production-generation” can make sense at some level, but the mental model breaks down when you go back to the “water-in-a-lake” way of considering the grid.

I assume that there is less electricity being moved on one end of a winding of some downstream transformer, but it could also be that we really don’t know.

The grid can’t move infinite power through any one point.

Substations and long distance transmission lines make local production a meaningful thing with real upsides. The overall grid avoids losses when power isn’t going through long distance transmission lines. Further as heat increases transmission losses and transmission losses produce heat, lowering the power sent through a long distance transmission line makes it more efficient.