Was talking to Mecha about this the other day and thought it would make a thread.
The short of it is that if a game receives a RC (Refused Classification), there for the game becomes illegal to sale, hire or public exhibition. However, it is still legal for you to own (except in Western Australia and parts of the Northern Territory.
Importing RC material is still illegal but the chances of ever getting caught is extremely low as Australia Customs would have to open the package to even check the material. When Left 4 Dead 2 was originally RC, many Australians who was interested in the game imported the UK version of the game. Some people who tried importing the game has reported that their game has been seized by customs and their game was destroyed as a result while there have been some people who bulk bought the game got through customs just fine. Left 4 Dead 2 was released here censored until 2013 when Valve appealed for a second classification and was finally release here uncensored.
Mortal Kombat was another game that was originally RC and many people resorted to importing. Customs has made it clear that they were on the lookout for Mortal Kombat import. Some copies were seize and most copies reach to Australian hands just fine. Mortal Kombat was later release in Australia uncensored.
When it comes to importing games that haven't been classified is in the gray area. They aren't banned in any sense. As someone that imports a lot of Japanese only games, Video game soundtracks and Manga, I never had any problems with customs besides a few packages being open for inspections. The general rule is, as long it isn't porn (especially cheese pizza) then you should be fine. I'll go into this a little later.