As far as I understood it from the books and from questions to Jordan about the matter, the way Balefire worked was to erase some time from your life backward from the moment you were hit with it and make you effectively die in that past moment but it didn't destroy your soul or effect your chances of being reborn. It was only so important to the issue of the Forsaken being given new bodies because apparently the DO needed to catch their souls at the moment they died to keep them with him instead of them going to wherever it is souls go between lives like everybody else.

But in tGS Balefire is described as erasing souls from the pattern for eternity, in effect truly killing people instead of just denying them this particular life incarnation.