What does an android Launcher actually do? Lets consider this scenario. I have a Samsung Galaxy smartphone which comes with Touchwiz as a default launcher. If I use a different launcher does it run on top of the touchwiz interface or does it disable touchwiz temporarily and run instead of it? What are the advantages/disadvantages of using 3rd party launchers?
A launcher, in simple terms, is an interface for your home screen; it determines the appearance of it, if you like.

If you were to install a 3rd party launcher (Nova is quite common), it would not run on TouchWiz, nor would it uninstall it.

If you do install a new launcher and want to go back to using TouchWiz, it's just a simple matter of tweaking a few settings in the Settings app.