Those gasses would escape on their own though if the tube just vented to atmosphere correct?
That's the dream. But there is no positive flow or movement with a simple hole to the outside. Gases can linger and contaminate the oil supply.
I suppose if you did more frequent oil changes the effect would be reduced.
The only downside is it is worse for the environment.
Not entirely, see above. But, some feel that lung cancer is a rather severe downside. Not really fair to require everyone else to stop breathing, IMO.
So the vapor separator is basically a catch can where water can condense and run out the bottom tube, and the air/gasses can go back into the cylinders if I understand correctly.
In essence yes. All the tubes are in fact ducting devices.
If I remove the system, any ideas on how best to plug the hole that would be in the cylinder head?
Do NOT plug the crankcase hose vent. It is the only way piston blow by gasses and pressure can be relieved or equalized with the barometric pressure of the atmosphere. You can blow seals and cause oil leaks.
Most devil-may-care operators just let the tube vent to atmosphere, and/or put a small air filter on the tube to keep crawling/flying critters out of the engine internals.
My opinion is these folks ought to run the tube up to exit at the gauge cluster. So, they can experience the full benefit of the mods they made.
(Only half joking there.)