Water-solubles in your distillate can gum up the works. Along with reducing your potency, they cause color in the final product and leave behind sludgy residue when distilling.
Most extractions bring some water-soluble components into the extract. These components come from the cells in the plant. Even butane or CO2 extractions can pull some.
With ethanol extractions in particular, these water-soluble compounds can make up quite a bit of the mix! Chlorophyll, sugars, and phospholipids all get pulled from the plant material along with the rest of the crude. The warmer the ethanol, the more water-solubles pulled.
We see even more water-solubles with ultrasonic extracts and screw press extractions. This is because the increased extraction efficiency comes from breaking open the cells and releasing many of these compounds.
Phospholipids make up many membranes in living organisms. They are tricky to remove because they are amphiphilic, meaning they like both water and non-polar solvents like hydrocarbons or even ethanol.
One solution is to extract the water-solubles after extraction and before distillation. Specially designed reactors can extract the water solubles. The oil is dissolved in a solvent and washed with water. Solubles are pulled out of the oil and into in the water. Once extraction is complete, the solvent can be rotovaped from the oil. Then it is ready for trouble free distillation.