In layman’s terms:
Underclocking the emulated CPU Clock Speed (emulated being important here) basically causes the emulator to calculate “less” per cycle. This means that whilst running games, it “skips” some instructions. For some games, notably during cutscenes that use FMVs (a video format), this massively increases performance as Citra basically doesn’t have to do a bunch of the calculations that it isn’t as good at. Ofcourse, it doesn’t just skip some of the calculations Citra is bad at, this applies to everything. That can lead to instabilities when things get skipped that a given game requires to function. Hence the freeze warning.
Overclocking the emulated CPU Clock Speed does the opposite ofcourse. It basically causes the emulator to calculate more per clock cycle. This means that, with the aforementioned example, it would drastically reduce performance when encountering calculations that Citra is bad at. On the other hand, since more is done per cycle, emulation stutter is reduced somewhat. So it can lead to smoother gameplay. That is what is meant by reducing in-game lag. Similar to underclocking, overclocking also reduces stability. Games are not designed to run at a higher clock fequency than what the 3DS’ CPU is rated for. Increasing the clock speed is therefore something that introduces a lot of instabilities.
Generally speaking, we don’t recommend that users play around with this settings unless they know what they’re getting into. We’ve gotten more than enough support requests with people wondering why their games constantly freeze when they’ve overclocked the emulated CPU Clock Speed to the maximum of 400%. So I’m glad to see that you’ve read the message we placed there
Note: My explanation is extremely generalized, and I don’t think I’m qualified to go into the exact specifics of how everything works.