You're australian, yet you don't know because you've never played on gpp, KoRx, Lolards [running on lakitu7 which supports it] or R funserver CZ.
In simple, unvanquished would probably be the first time you would've encountered it.
Okay lemme give you an example. You know [][][][]AA server? When you fire the luci, it takes time before it actually comes out, and if you're moving it doesn't really spawn from your gun? In reality your client waits for the server to confirm that you shot it and the server displays its velocity vector and its position.
Projectilenudge simply nudges that projectile forward for you so when unlagged is supported as well as projectilenudge [in most servers it is so don't worry about this] the server will also backtrack your projectile [i.e. it should hit whatever it hits] while client-side, you'll see the projectile nudged forward in real time so it doesn't appear to spawn late.
The side effect of the client-side visual effects is that they float on surfaces.
Try comparing these two videos of KoRx and a gpp game:
KoRx euro, Last year on the macintosh, recorded live with cg_projectilenudge enabled, without unlagged enabled server-side:
http://www.youtube.com/watch?v=Gr2mJZlr6UI
KoRx euro, This year on me new computer, recorded live, cg_projectilenudge disabled and server is unlagged disabled:
http://www.youtube.com/watch?v=xxJWgvK0LOk
Live recording on a Gpp server: "Fg" [Fight for Glory, NOT For Glory, and yes i did tell them the existance of the australian one] from europe, with unlagged and cg_projectilnudge on with a dodgy connection causing unlagged to work like 150 ping lagged:
http://www.youtube.com/watch?v=W8YuL6KFjIk
Cg_projectilnudge is unreliable, we should change it as well.