I don't have the technical terminology that might help explain things, nor do I know anything concrete about ControlSim, but I think I know what he's talking about (having created a very loosely SSB-esque online multiplayer game that Sonic Battle bears a surprising resemblance to). Here goes...
The GCs are constantly trying to send the player information data to each other. Position, momentum, controller state, and stuff like that. The LAN games will wait until this data is received before the game goes to the next frame, so if the data takes a while to send the game will experience slowdown. ControlSim sends this data as fast as possible, but doesn't slow the game down if it hasn't arrived yet. It instead assumes the controller state hasn't changed since the last time it received the player info, and lets Player A's Gamecube determine Player B's position normally. A lot of times, this won't even be noticeable, because we (or at least I) tend to hold the same direction if I get sent flying sideways or am trying to close distance quickly. But there will be some instances where Player B's position on Player A's Gamecube is different than Player B's position in Player B's Gamecube. This shouldn't be too much of a problem most of the time, since as soon as Player A's GC receives the next batch of player info then Player B's position will be corrected, although this may create the appearance of short-range teleporting on higher-ping connections.
There is one type of situation that this lag might cause problems in SSBM, though, but the more I think about it the less I believe it will be a problem, so we'll just wait and see.