Right, so they still have borders. Their police and authority only applies within a certain area and at the edge of that area is a border. The fact that you can traverse that border freely does not mean it doesn't exist.

That's internal borders inside the Schengen area, we still don't let unlimited quantities of immigrants into the area because usually the police force is sized for a certain amount of people living in the area, but couldn't handle it being doubled suddenly and building their own shanty towns.