Hello Jesteen
In the example given, you can see that the next hop of the eBGP route to 1.1.1.1/32 that exists in the PE1 router is 192.168.12.1. This is the next hop for this particular route. When PE1 advertises this to PE2 via iBGP, the next-hop IP used by PE2 is the 2.2.2.2 address of PE1.
The next-hop IP has changed. This is because when you configure iBGP to share VPNv4 prefixes, you create a tunnel between the loopbacks of the PE routers. By definition and by design, BGP will change the next-hop IP to the endpoint of that tunnel. That’s the reason why we don’t need the next hop self command.
I hope this has been helpful!
Laz