[Biggs]

You are not directly connected to the server you are playing on. Your connection probably passes through 10 different networks before it reaches the server itself. If any of those hops have a latency issue or if you drop some packets somewhere, you experience what you know as lag. And if multiple people are connecting through a network near the server and it is having issues, then multiple people can experience the same lag.

Run a tracert and you will see for yourself.