Put this in your mouth and chew on it a bit, it's delicious.

The Source engine features 3 systems called "Entity Interpolation", "Extrapolation" and "Lag Compensation". The combined effort of these systems allows smoother gameplay, even if you play with players who have highly varying pings.

The Interpolation part calculates positions from all players by using data pakets. If one data paket is missing due to a client-side lag, the system will calculate the missing position by using information saved in the history buffer. In case that the data loss is too big to fill it up with information from the butter, the extrapolation part kicks in. All missing information is being calculated by using the existing data pakets.

Since the two systems above cause a constant view lag of 100 miliseconds. The lag compensation prevents this lag by saving information for 1 second and use it for rendering the player models correctly. Even if the player model is already out of range, you may have hit the box after all.

Even though all of this effort does increase the performance of the game, it's not always perfect. It happens that the hitbox is placed slightly behind the player model. This explains why players can be killed when walking around corners.