A new update for Mario Kart 7 finally kills off a shortcut exploit found in three tracks for the game. The exploits that were being taken advantage of in multiplayer were in the Wuhu Island Loop, Wuhu Mountain Loop and GBA Bowser Castle 1 courses. Users that want to be able to play online multiplayer will need to get the latest 3DS system update, and then download the update for Mario Kart 7.
As Computer and Video Games points out, you can still play local multiplayer and single player without updating the game, but to play online you will have to install the fix.
The video to your left from YouTube shows exactly why this exploit needs to be eliminated.