IIRC this allows you to do client-side prediction on physics and game logic to hide or smooth out minor lag. I suppose all commercial multiplayer games do it these days.
With the physics and game logic calculated server side only, what you as a client see's is the most accurate but because of lag its jumpy and slow, unless you are on a LAN with the server. You can also calculate on the client, and show that to the player and in practice it looks and plays great - buts its only an approximation of what is "really" happening. If the server and client start disagreeing to much, the client will take the servers state and apply that and that's when you get warping - but much less often than if there was no client side prediction.
Also, as already pointed out, the server does not trust the client on its state (neither would there be a mechanism for he client to even tell the server whats going on), so cheating is ameliorated somewhat.
Also, as I understand it, the MMOFPS Planetside 2 does actually have a lot more trust in the client when it comes to position of player and perhaps other things than say Quake multiplayer. There are trade off's when you have 500 people on a server vs 32 max. I presume they have other cheat protection mechanisms.