I am trying to understand it completely. If the the hits on my screen count, then bullets can't get lost because my computer is calculating whether the target is hit based on his position in my virtual sky and the path of my bullets in my sky. So then the question is do packets that contain the hit data get lost, such that the damage is never recorded? If I understand what you're saying correctly, only that the target was hit (and how hard and where) is calculated on my computer, but that info is then transmitted to the server which keeps track of the hits and totals the plan damage and determines if the target is damaged. So if the hit packets get lost, the game will still see it as a miss. Also noteworthy is that if a guy is Warping, I can still hit him where I see him on my screen, assuming the packets don't get lost.
If all this is true than to some it all up....
1) When shooting at a target you need NOT account for lag effects with respect to gunnery.
2) When being shot at you NEED to account for lag and project/react to lag affects.
3) Dropped packets can cause hits not to register, and warping.
Have I got it correct?