It has no difference on the actual gameplay. It just draws the impact marks in real time so you don't see the lag. If yow want to see what is really hapening use a projectile weapon that doesn't use impact prediction like a grenade or an M203.

Impact prediction is to reduce the feeling of lag, nothing more.  Basically it just draws the bullet hole where it belives the server would have put it.  There is no difference in where you have to shoot with it on/off.  Antilag is what controls whether you need to lead your shots or not.  

If you want to see your bullets hit the wall immediately after firing the gun then turn it on (which should make it feel less laggy then it is).  If you want it to show exactly where the server said the bullet landed then turn if off.   In the end the server is going to decide if the bullet hits anyone and if they die (which is what controls the death animation).  

The only real negative to having it on is that sometimes you will see a bullet hit the wall when it actually hit a person or sometimes you will not see the bullet hit the wall making you think you hit the person.  However, if you dont see blood, then you didnt hit them (providing you dont have impact prediction set to 2).

Hope that helps.

So does impactPrediction 2 predict gore as well as wall impacts?

predicts flesh impacts.