What does it mean by "basband isolatation"?

Does baseband isolation mean that the sim card can’t have access to the phone’s hardware such as internal storage?

Short/Simple answer: Yes, though the os does allow certain access through it, such as access to the microphone so you can have phone calls.

Long Answer:
So in most smartphones the baseband modem is on the same chipset as the main cpu and thus shares memory with the os running on the phone. On the librem 5 the baseband modem is effectively connected via a usb bus, and thus has it’s own separate memory and storage.

Thus without some form of exploit, it should not be possible for the modem to access anything on the main chipset (without permission from the os).

On a standard smartphone, there are security protections to prevent the modem from accessing the ram that the os is using, and some believe this security protection is better than that provided by the total separation on the librem 5.
The argument as to which is better largely comes down to this. Do you trust the the closed source proprietary pieces that separate the ram or do you trust the usb implementation and the open source drivers in linux to handle that protection