Interpolation means mixing between a past gamestate and a current one to create smoother motion. Lerp settings set how far in the past players will look for their interpolation.
If I’m sitting with a Lerp of 0ms, I’m seeing only the most recent state I’ve received. Say I’m a tank in L4D. There’s someone running away from me, and he’s just out of my reach. I toggle my Lerp value to 100ms, and now the gamestate I’m seeing is further in the past. Both the client and the server are okay with this, and now my hits are calculated against the old gamestate. I’ve just gone into the past to get a punch I otherwise couldn’t.
This helps mitigate that issue (in terms of cheating) by echoing, logging, tracking lerp changes. In tournament play, this is enough proof of cheating to overturn a match result.