Lag time is the time period calculated in days dividing the tasks linked. The tasks are recalculated according to their types when their current position indicates time gap greater or shorter than the Lag time set for that particular link.
If the value is a positive number the tasks will be separated by the given number of days. If on the other hand the Lag time is a negative value than the tasks will 'overlap'.
The working and non-working days are both included in the lag time calculation. Parent tasks can start / finish on the non-working days when a lag time is applied: