How does system latency compare to other PC performance metrics?
Are system latency and network latency the same?
No, but they can cause very similar issues.
Network latency is the time your game client takes to communicate and return from the game server. It can often be somewhat mitigated(...or exacerbated) by game developer's network code. Examples of these mitigations include
Counter-Strike's lag compensation and this video on
Overwatch's netcode.
System latency on the other hand, deals solely with measuring your machine. While it can't be said to be more important than network latency, playing with a high system latency can often feel like your "lagging" or experiencing high network latency.
Isn't FPS just as good of a measurement?
While increasing FPS generally correlates with decreasing system latency, the 2 measurements are not the same. FPS measures the throughput of your system, while system latency actually measure the end-to-end time from input to output. Oftentimes PCs can maintain relatively high framerates, but have exceptionally high system latency. While this can make your movements appear or feel sluggish, you often can even tell you're being robbed of precious milliseconds.
Explain it like I'm 5...
Here's an analogy: Do you ever turn on your shower and have to wait for the water to heat up? The water begins flowing immediately, but jumping in is not advisable. You wait a moment for the water to heat up and then you can jump in.
In this case the water is FPS and system latency is the heat of your water. When playing a game, the FPS(water) can be flowing just fine, but your eyes often can't tell whether you're receiving those frames quickly(hot) or slowly(cold).