Definition
Latency is the round-trip time for a small packet between two points on a network — typically measured by ping. It is influenced by physical distance (the speed of light in fibre is finite), the number of network hops, congestion at intermediate routers, and processing time on the endpoints. For most browsing, latency under 100 ms is imperceptible; for online gaming and live video, lower is better; for high-frequency trading and realtime audio, single-digit milliseconds matter.
How a VPN Affects Latency
Adding a VPN almost always increases latency, because your traffic now takes a detour through the VPN server before reaching its destination. The detour adds the round-trip time from you to the VPN server. If the VPN server is on the path you would have taken anyway, the increase is small; if you connect from Europe to a server in Australia and then to a destination in the US, it is large. Choosing a VPN server geographically close to either your location or your destination minimizes the cost.
Latency vs Bandwidth
Latency and bandwidth are independent. A VPN can have plenty of bandwidth but high latency, or low latency but limited bandwidth. For downloading large files, bandwidth dominates. For interactive applications, latency dominates. WireGuard and IKEv2 generally offer lower latency than OpenVPN because of their leaner protocol overhead and faster handshake.