Latency is how fast data is moving. How quickly does it get from point A to point B? (And it’s generally measured in milliseconds.)
Bandwidth vs Latency
Be careful not to confuse latency with bandwidth. Bandwidth is the size of the road – as in how much data can travel at once. Whereas Latency is the speed – how long it takes to get down the road. So for your multiplayer games, you’ll want to aim for high bandwidth, and low latency.
Lower latency = less lag
The lower the latency, the less lag your players will experience. For FPS games (first-person shooter), nearly all actions are in realtime. If one player has worse latency than another, then they’ll be at a disadvantage against the other players. Which isn’t fun for anyone.
But you don’t always need low latency. Turn-based strategy games, for example, tend to send all the changes at the end of the turn. So a little slower latency isn’t going to ruin the game.
There’ll always be a difference in latency
This is where latency compensation will come in. Say someone has a ping of 20, and another has 70, one player is at a serious disadvantage. Their hits may not be registered, despite the player aiming correctly. The latency compensation (a set of rules and code) keeps this air. But it depends on the networking code which the developer built.