Australia, like many other countries, provides for citizenship by descent - in Australia, if one parent is an Australian citizen ( some countries go back to grandparents) . Some are automatic or semi-automatic.
In Australia, It requires a process to establish the facts, after which you get a citizenship document. It makes it easier to get a passport, security clearance, Medicare card etc, but I doubt that not going through the process means that you are not an Australian citizen.
The previous High Court cases dealt with naturalised foreign born citizens. This time the High Court will be dealing with three different scenarios: foreign born Australian citizens ( Ludlam and Waters); naturalised ( ( Roberts) and four by descent ( Joyce, Nash, Canavan and Xenophon)
The High Court hearing on Thursday is a Directions Hearing which will establish procedures and timetable. Brandis has said that he does not expect the first substantive hearing before October.