Matches in in-person tournaments happen with both players on the same console. It’s not possible to cheat in a 2d fighter online using mods, because the game’s multiplayer data is directly peer-to-peer: if I install a mod that makes my kick faster, it’ll be a faster kick on my game but the normal kick in your game, causing the game state to desync (if the kick hits you on my game but you hit me first in your game, both of our games are now playing out different scenarios but still controlling their instance of the “opponent” with the opponent’s inputs)
What happened in SF6 was a tournament streamer had a boobie mod installed, and was using the in-engine “spectate” feature to put a match between two players on stream. Neither player saw the streamer’s mod, it did not have any effect on the competitive integrity of the match. It was just a funny moment of a streamer’s horny-on-main SF6 install being exposed on stream.