suppose you are fighting an enemy.

without lag compensation, there are three problems. their magnitudes are directly proportional to your own latency.
1. bullets aimed on the enemy's head do not hit consistently. by the time the server receives the packets, the enemy could have moved somewhere else.
2. bullets fired just before dying have no effect.
3. enemy bullets that actually hit seem to lag behind. because of this, often bullets will appear to hit through corners.

with lag compensation, (1) is completely eliminated. (2) can be eliminated, but doing so would created incredibly inconsistent effects, such as getting killed by dead enemies. therefore in my script, (2) is ignored. once the server says you are dead, further packets do nothing to your enemy.

as for (3), without lag compensation, the magnitude of the effect is proportional to your own latency. but with lag compensation, the magnitude is proportional to your own latency plus your enemy's latency. this effect is reciprocal; your enemy feels it exactly as much as you do.

so with lag compensation, the only advantage that a low latency player has over a high latency player is (2).
more reading: http://developer.valvesoftware.com/wiki/Latency_Compensating_Methods_in_Client/Server_In-game_Protocol_Design_and_Optimization#Lag_Compensation

version 0.5 (view online)
version 0.4 (view online)
version 0.3 (view online)
version 0.2 (view online)
version 0.1 (view online)

version 0.5
-added weapon spray (e.g. m249 isn't accurate anymore).

-added support for burst mode. (NOTE: if you have a glock/famas with only one or two bullets, the server will still think you shot three. i do not know how to fix this efficiently. it sounds like a simple problem, but the lack of player(id,"ammo") makes it kinda complicated.)

-scoped guns have correct damage.

-minor code changes

version 0.4
-more code comments.

-more compact and efficient wall search algorithm.

-knife secondary attack now works and is lag compensated.

-HE grenades work now (not lag compensated).

-all damages multipled by mp_damagefactor.

version 0.3
-all weapons work now. (replaced weapons table with itemtype function as suggested by lee).

-fixed a bug where you can shoot though the wall if your angle is a multiple of 90.

-bug with knife slashes where its range was 0 when standing in specific positons.

version 0.2
-buffer modified to use less cpu as recommended by 3rr0r.

-hit detection modified. huge ass for loop replaced by simpler calculations, at the expense of increased code complexity. mathematically, the new method is more precise for bullets that just barely graze a hitbox's corner. performance should be improved since there is no "for i=1,900."

-lua error for usage of unimplemented weapons removed.