DC Battery Disconnect

When I turn the battery disconnect to the off position, all of the coach lights still work. What does this disconnect do? 2018, 2350 model

It disconnects the coach battery from most things, but the chassis battery is still connected and can provide 12v to many things also.  Especially if the engine is running.

That's why it is always a good idea to also disconnect the chassis battery whenever your PC is not being used.

I use a knife switch like the below photo.

I always understood, the kill-all switch on the kitchen base cabinet, located by the main entry door, kills all power to the house with the only exception being the power-retracting step.  That gets power from the chassis battery to assure it automatically retracts when the engine is started, regardless if the house power is on or off.  You don't want to be driving your PC with the step extended.

I wonder if Phoenix has wired some things differently in recent years.

Mine might be wired differently but it completely disconnects the battery when turned off to eliminate parasitic loads.  However the lights and other 12 volt items are powered if the engine is running.  The same if the PC is connected to 110 volt shore power .  As I understand some of the earlier units used a solenoid actuated disconnect which didn’t completely isolate the battery.  When I ordered mine I supplied PC with a mechanical rotary disconnect to be used in lieu of the solenoid type switch so I could be sure the battery was completely isolated.