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I do not own a XBOX and never did, so I do not know how it works. However, a few friends and me were talking about it in the light of Grand Theft Auto 5 bans and wondered how it exactly works.

How does the console tell me that it is hardware banned and can you still use it offline after it? Can someone please elaborate on this?

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Microsoft has an informative page on console suspensions a.k.a. hardware bans. In part it says:

We take console suspensions seriously, and only take such action after a lengthy investigation by multiple teams. When a console is suspended from accessing the service, it will display the following message:

“This console has been banned for violations of the Terms of Use. To protect the Xbox Live service and its members, Microsoft does not provide details about console bans. There is no recourse for Terms of Use violations.”

Getting that message when attempting to log into Xbox Live is how you can tell it's been banned. It is only banned from Xbox Live though, and you can keep using your Xbox in ways that don't involve Xbox Live.

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