It's a way to remove probable cause. If an officer has probable cause (not based on race or ethnicity--of course), what do you suppose is the sequence of events? I would imagine the officer would ask the person's status. If the person can show good documents, then the officer will no longer have probable cause.
OTOH, I have no idea what "probable cause" could possibly be if it's not racial/ethnic profiling. These aren't border patrol agents, but local and state cops, so they're not witnessing people coming into the country. There is no outward sign (not language, not ethnicity, not the type of car, the clothing, not the commission of other crimes--nothing) that can distinguish an illegal from a legal immigrant or even a citizen.
If you're a Mexican legally living in Arizona, you would be foolish not to carry your documentation with you, if this law goes into effect. The reason is because producing your papers can remove probable cause.