You definitely don't understand what I'm saying, and it sounds to me like you don't know what latency is either.
Game latency is the delay between when a user performs an action, and when the game acts on that action. Network latency ("lag") is the "ping time" between the host and other players.
It's important to note that a client's actions have to be relayed to all the players via the host, so even if everyones ping is 32ms, there's still 64ms of network latency. It's uncommon for an internet connection to maintain a latency of under 200ms for longer than a few seconds, regardless of the quality of the internet connection. That means that the internet-induced network latency on a SC game, under ideal conditions, will often be higher than 400ms. That's not insubstantial; you can easily blink twice in that period of time.
Heads-up games always perform better because the network latency doesn't double for clients, but still it's enough to blink once!
Game latency is necessary for network games because network latency affects everyone, but it does so unequally - which is exacerbated by the fact that the host has half the latency of everyone else. If you do not set the game latency such that it is always higher than the network latency, then you create a situation where the host has a chance to make game moves earlier than clients do. That gives the host a majorly unfair advantage at mircroing, which is why lan latency is not available for internet games.
To recap: Game latency absorbs network latency. When network latency is higher than game latency, the host is cheating. When in games with more than 2 players, the host is cheating twice as much.