This video demonstrates the difference between showing up to the gates of a major city with contraband in your cargo hold and contraband hidden in your stash.
In the first case, you can try to bribe or con the guards but it's a difficult (and often expensive) venture, which can end in fines, faction reputation loss, or worse.
Contraband tucked away in the hidden stash - a piece of equipment you can get from certain places - hides the goods from the inspection, however, and you can safely take it into cities. The question is only whether or not you can sell it there.
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