System Generator does not replace hardware description language (HDL)-based design, but does makes it possible to focus your attention only on the critical parts. By analogy, most DSP programmers do not program exclusively in assembler; they start in a higher-level language like C, and write assembly code only where it is required to meet performance requirements.
A good rule of thumb is this: in the parts of the design where you must manage internal hardware clocks (e.g., using DDR or phased clocking), you should implement using HDL. The less critical portions of the design can be implemented in System Generator, and then the HDL and System Generator portions can be connected. Usually, most portions of a signal processing system do not need this level of control, except at external interfaces. System Generator provides mechanisms to import HDL code into a design (see Importing HDL Modules) that are of particular interest to the HDL designer.
Another aspect of System Generator that is of interest to the engineer who designs using HDL is its ability to automatically generate an HDL test bench, including test vectors. This aspect is described in the topic HDL Testbench.
Finally, the hardware co-simulation interfaces described in the topic Using Hardware Co-Simulation allow you to run a design in hardware under the control of Simulink, bringing the full power of MATLAB and Simulink to bear for data analysis and visualization.