A lag switch is a device which is used to create time lags or delays into the flow of data traffic. This way the modem does not get overloaded. Lag switches are often used for the less noble purpose of cheating in online games.
The lag switch look like a small box with a part of a CAT5 cable shortened and spliced to a physical switch. It is then connected to a router or the modem.
When you turn it on it effectively blocks out data traffic from the network for a short period of time. In game play it allows the cheater to appear immobile to online gamers while he/she reaps the benefits of the time lag. Once the traffic resumes the player seems to experience a sudden burst of good fortune in the game, as mentioned earlier not a very noble practice. It is a good way of preventing the modem from overloading.