[Tyhm]

A little of each.

Say Client 1 and Client 2 enter a room. Baddy A is walking around on Serverside Control, but its clientside script is also running a local timeout loop on Clients 1 and 2 to see if the baddy sees them.
Client 1 walks in front of Baddy A - this triggers his local script, and Baddy A stops moving Serverside, instead moving per the script running on Client 1's computer. It moves, it attacks, all as fluidly as a clientside script.
Client 2 runs up behind and attacks Baddy A:
Does he see Baddy A still standing where it left Serverside Movement?
Is Baddy A jumping around based on Client 1's lag?

*shrugs* Something like that.