During large fleet engagements, lag usually occurs. The reason is that so many players are sending actions to the server of a system, that the server can't handle all those action in a timely manner.
Imagine a bunch of houses with roads connecting to a building in downtown. Each house would be a person in EVE and the building in downtown would be the server. Now let's imagine that a car from a house is an action, like turning on your missile launcher. Normally, if just a few people drive their cars on the road, traffic goes smoothly. But if you have a huge number, then you get a traffic jam.
The actions being received/sent are not on a rhythmic pattern. Imagine lots of cars one minute and the next just a few. Thus there would be times of fast traffic and slow crawls (lag spikes).
What CCP did to combat this is to implement Time Dilation (TiDi - pronounced 'tye-die'). TiDi would slow almost all actions. This is kind of like setting a speed limit on the road so that all the cars go at a steady smooth pace.
TiDi affects a node, the hardware hosting specific regions in EVE space. When lots of players start to overload a node, TiDi takes place. This not only keeps a smooth pace but helps prevent players from lagging out (where their client disconnects).
When TiDi occurs, it's like everything is in bullet time from The Matrix film. It's actually quite awesome the first time you see it..
Now, some TIDI time-bending examples: It takes 10 seconds to load ammo into a launcher (Heavy Missile launcher, for example) at 0% TIDI. At:
The actual math is:
Actual Time = Game Time / [1 - ( TIDI Factor / 100)]
Where “Game Time” is the time the game says an action should take (10 seconds to load a missile launcher, 10 minutes for a non-bonused Cyno, etc).
Usually multiple solar systems share a CPU in the EVE cluster. Therefore, if one solar system is heavily taxes, all solar systems on that CPU will be affected by TIDI. This is why all solar systems within 2-3 jumps of a combat zone are usually, but not always, TIDIed. They tend to all be on the same node.
However, capital ships can jump from beyond 5 jumps away, and might be able to stage in a system unaffected by TIDI. A Cynosural Field lit in a system with 90% TIDI will last for about an hour and a half. Those capitals have an hour or so to stage and jump in during a TIDI battle. This has happened before and does need to be considered. Your enemies, or allies, will have time to stage to help or hurt you.
Alpha Fleet type engagements will be affected as well. Without passive targeters your enemies will have *quite* a bit of warning that they are being locked before they explode. This will give logistics time to react.