“Things are getting a whole lot easier for a big part of our international community today. Users who use Twitch in Chinese, Japanese, and Korean can now add a localized display name with characters from their respective languages in front of the existing username. We know this doesn’t cover everyone, it’s just where we are starting. We will be rolling out localized display names to other regions in the future.”
The announcement makes it very clear that this is not a name change as the localized name appears next to the existing username and the process works just like changing the capitalization of your Twitch name. According to this reply to a Reddit thread, the change is permanent and changing your localized name to something offensive is likely to get that account suspended.