The term “penetrating finish” is one of the most misleading in the vocabulary of finishing because all finishes penetrate. The term is generally used to describe just oil finishes, which dry slowly so they may penetrate a little deeper than faster-drying finishes. But depth of penetration doesn’t have anything to do with protection for the wood, and it’s here that the term becomes misleading because many people think it does, and some manufacturers claim it does. The common descriptive phrase is that the finish “protects the wood from the inside.”
But the quality of a finish that creates better protection for the wood—that is, protection from moisture getting into the wood—is that it dries hard so it can be built thicker on the wood. The thicker the finish, within limits, the better it resists moisture penetration, and oil finishes can’t be built up because they don’t dry hard.
The better terms to use are “film-building” to refer to finishes that dry hard so they can be built up, and “non-film-building” to refer to finishes that don’t cure hard enough to be built up. Using these terms, oil finishes, and also wax finishes, are non-film-building finishes. Varnish, lacquer, shellac and water-based finishes are all film-building finishes.