From OdaWiki

Aiming Latency Compensation, or Unlagged as it is commonly known in the Doom community, is a feature that temporally adjusts the position of possible targets to account for a player's network latency when that player fires an instant-hit weapon such as the shotgun or chaingun.

When a player aims and fires at an enemy player, a message is sent from the player to the server indicating the player is firing a weapon. The server does not instantly receive the message however, as the player often has network latency delaying the message during its transit. This latency is approximately half of the player's round-trip ping time to the server. The result of high levels of latency is often that an enemy will have moved by the time the server receives the player's message to fire a weapon, spoiling the player's aim. Players have to aim in front of moving targets to account for this phenomena.

Aiming Latency Compensation is able to combat this problem. When a server receives a message that a player is firing a weapon, it accurately determines the player's latency to the server. Then it temporarily moves all enemies to the position they were in when the player originally fired the weapon, as determined by the latency calculation. Next, the server calculates any damage to enemies, and finally, restores the enemies to their most recent position. The effect of this compensation is that the player can now aim directly at a moving enemy instead of aiming ahead when firing instant-hit weapons.