Hi welcome to the community :)
What is Lag....? Now that's a good question to ask. From my online racing days we were always trying to understand this. When racing online the last thing we needed was lag. We spent many years trying to full understand it and stop it happening.
Unfortunately it was never going to happen with 56K modems or slower. :( Then when broadband first appeared we thought this was the answer we were looking for. Ok it dose help but not as much as we hoped.
I will try and explain as simple as possible:-
From what we understood lag is when your computer loses information to show where the position of another persons car is that you are connected to. This means it's like a horse that's lost his jockey, the computer displays the car in a random way until it gets information from the computer it is connected to.
The only way to stop this is to have a perfect connection 100% of the time you are connected together. But in the real world that is not always possible so you will always get this problem. But if everyone had mega broadband this would help because if someone connects with a 56K modem then you will amplify the problem.
I hope this is clear to understand, remember this is just how we understood lag so there could be a official answer out there somewhere ;)