Over at the Valve ERC, there is a new and very detailed look at the way Source handles multiplayer networking. The article explains the technique behind the lag compensation in Source and the differences between what the server sees, what you see, and how the two views form into one.
Lets assume a player has a network latency of 100 milliseconds and starts to move forward. The information that the +FORWARD key is pressed is stored in a user command and send to the server. There the user command is processed by the movement code and the player's character is moved forward in the game world. This world state change is transmitted to all clients with the next snapshot update.That brief explanation of the problems associated with high latency is just one of many issues discussed. Keep in mind that the article contains a lot of technical explanations and isn't for the faint of networking knowledge.
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