It runs in the same process as the CLR/C#/.NET and runtime of your application
When Python is integrated into .NET through use of the PythonNET or similar system, the Python interpreter is loaded as a DLL into the parent process and executes together with the native and managed CLR code. Broadly, compared to other ways of integrating Python and NET, this has the advantage of best performance and simplest management, and the disadvantage of least isolation.
While it may seem at first sight unusual to include a dynamic, interpreted language into a compiled application it is in fact a common design pattern used frequently in office applications (with various “macro” languages), CAD (AutoDesk originally had a Lisp interpreter), games and many other application areas.