Moderators have a IP search page where they can check whether an IP is a VPN or residential IP and where they can see an activity log of which accounts have used that IP in the past. Generally IPs are only banned if they're not used by other legitimate users and they're being actively used by spammers or trolls to create sockpuppet accounts en masse. IP bans are also typically only for a single IP, or at most a /24 subnet if a proxy range is being abused, not for whole ISPs.
Previously it was possible to login from a banned IP, but almost all actions under your account were disabled, so you were effectively locked out of your account anyway. However, there were some oversights with certain actions still being allowed when they shouldn't have been. It's easier to treat IP bans as blanket bans than to reason about each individual action that should or should not be allowed.
Disabling registration by itself isn't enough because it's common for people to register a bunch of sockpuppet accounts in advance before they start using them. It's also common to create sockpuppets using proxies and then control them from a home IP. Disabling logins is designed to prevent people from cycling through premade sockpuppet accounts after they've been IP banned.