ATC 1 gets its altitude data from ADIRS 1 while ATC 2 gets its altitude data from ADIRS 2. Also when you put AP1 on, the aircraft maintains selected altitude based on ADIRS 1 data and vice versa for AP2.
The problem is the following:
Flying at FL370 with PFD 1 showing exactly 37000ft and PFD 2 showing 300ft higher than PFD1 (obviously out of tolerance, not realistic)
AP1 is engaged and ATC2 is selected. On ATC radar scope your altitude will show as 37,300ft, and ATC will then have to ask you to stop altitude squawk and cancel RVSM and move traffic away or move you away.
If in this scenario, the pilot selected ATC 1 the altitude indicated on the ATC radar scope will be 37,000ft and the whole cancelling RVSM etc. will not happen. However, RVSM tolerance is still being exceeded in this extreme scenario.