Balance servers are unlagged (with the notable exception of [T] Balance).
The way it works is as follows. Suppose you are pinging a nasty 300 ms.
1.) You see a dretch, who pings at 50 ms, aim AT the dretch and fire.
2.) 300 ms later, your "shot message" arrives at the server. By now the dretch has moved out of the way in those 300 ms! Oh noes, you're gonna miss right? On a normal server, yes, but with unlagged...
3.) The server has been keeping track of where all of the players are for the past second or so. It rewinds to the game position 300 ms ago *just for your hit check*! It figures out you actually fired when the dretch was under your crosshair and voila, you just whacked a dretch. Seems great, doesn't it? Well not entirely, what does the dretch see?
4.) When you were pressing your mouse button to fire, the dretch saw you and scampered off ... he doesn't see you firing because even the server doesn't know you fired until 300 ms after you click.
5.) Now 300 ms after you clicked, the server registers a hit and sends the dretch a message saying that he's actually dead.
6.) 350 ms after the click, the dretch is running merrily along down some hallway away from you all of a sudden is teleported back under your crosshair and killed. To the dretch it may even look like you shot him through the wall. Cries of "H4X!!" ensue.
Unlagged generally makes the world a better place. However, with Tremulous there is a snag. Only one team is packing long range hitscan weapons and is benefited disproportionately. The damage and fire rate values that were tweaked to balance the teams when human laggers were filling empty air full of bullets are now much too great when human laggers actually nail their targets.
For more info, see the author's website:
http://www.ra.is/unlagged/