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That stuff works. Broadly speaking, the internet is the network between networks (that's what the word "internet" actually means).
Between you and the target system your PC is talking to, there are normally many different networks, all belong to other people and all have different capacity and load. Now imagine that between you and your WoW server, there is a part of the network that has a significant lower capacity. If your system (and everyone else's) would send data at full capacity what your local network can carry, but those little network in between had a way lower capacity, you'd overflood that network and traffic would break down there, causing trouble.
That's why the communication protocols, especially TCP which WoW uses, have traffic control mechanisms built in. They sort of notice when such things happen and slow down to sane levels to not cause total overflooding. Now these mechanisms are tuned to certain goals and TCP is generally tuned for bulk data transfer (which means full data packets at maximum speed normally). WoW does use TCP but it does use it in quite a complete different way. It sends lots of very small (non full) data packets at intervals. Now this works normally fine too, however one of the traffic control mechanisms now is kicking in here and is withholding packets for some milliseconds and sending them later. This causes extra latency.
There is a metric ton of parameters in networking that you can screw around with and this registry fix fiddles with one of them. It's a simple way to tell your operating system: Send a certain type of packet out as soon as you get it, do not wait under all circumstances. And this is what may help you. Since this is a global setting of your operating system, it may however influence other network applications as well, and not necessarily in a good way. It may reduce bulk download rates, for example. There is a reason why the default is what it is. If you want to min/max your WoW connection/latency, you should play around with it and see if it helps you or not and if you notice any adverse effect when not running WoW.
But it's neither a placebo nor psychology here. It's just a bit hard to explain (I simplified a lot) what it does. It's also a bit non-obvious which is why this has been discovered only after ~2 years.
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