* Disclaimer: The images above are a good estimation of what the system latency issue looks like, but the numbers are not entirely accurate. More accurate & interactive depictions are on the way.
As you can see, at 0 ms system latency, the blue box completely encompasses the red box. "What you see is what you get." As the system latency begins to creep up, the amount of the visible hitbox that is "hittable" decreases.
While the example above is a good depiction of the issues that high system latency can cause, it only paints a part of the story. This is the delay seen on every frame... but your system latency is occurring on every single frame and there is a compound effect that occurs. In a game, you're not firing a single shot, but reacting to the result of each and every shot that you fire. This compound effect is a bit too in-depth for this page, but you can read more about its effects in this Nvidia white paper