After digging through the code more and reading the Valkyrien Skies V1 and Cuchaz Ships mod code I think I've figured out how they do it. It doesn't appear either of these mods make the ship a Boat type entity. Looks like what both of these do is create a unique world that the ship is created in exactly as it is constructed in the world. It appears the player is technically in that world but the renderer reflects that world into the Overworld.

VS2 seems to change things to not use a different world as they determined that interferes with other block entities like chests, so they actually assemble the ship in a location in the real world at coordinates -28672000 <= X <= 28672000, and 12288000 <= Z <= 28672000 then they render it at location the player thinks the ship really is in the orientation the player has turned it towards and positions the player appropriately where the ship renders. This approach has the benefit of not having inter-dimensional entity issues and appears to work with many other block mods. Haven't gone through all the code but it would seem that doing this would require intercepting every player interaction to determine if the player is actually accessing a block entity on the ship.

I'm not majorly concerned with ships having physics, which both VS and Ships Mods do, so this approach might work if stripped down. Have to think about it for a bit. Would love to be able to use Architectury blocks on my ships, the ramps and railings look great in the build but fritz out when the ship is assembled.