It only effects the area where the effect is taking place. And it doesn’t mean that area is ruined or anything…just that it’s been altered.
For any compressed format like DV or HDV the computer has to un-compress the video, create the effect, and then re-compress it to the original format.
Imagine that you took a JPEG photo with a still camera but you had a photo editing program that can only edit TIFFs. You’d have to convert the JPEG to a TIFF, edit it, then re-save it as a JPEG to display it on your website. It’s pretty much exactly like that.
The quality will be fine, this is just a “how-it-works” kind of explination. If you were turning this video into a feature film or something it would be worth figuring out ways around this, but if you’re mastering back to HDV it’ll be just fine in the end.