What you are saying that what I see on my console with good connections is not the same as the driver with bad connections on his console and he is seeing no problem.
It doesn't matter who has the bad connection, it's two way traffic, you both suffer equally. The only difference is that the player with the bad connection has 'trouble' with all cars, not just you.
There can be a difference in up and down stream lag though. Having a laggy upstream connection is kinda like cheating when your downstream connection is fine. I've had that a couple times in the past with my ISP. The result is that you see everything as normal yet your telemetry reaches everyone else late, so everyone sees your car jumping around, possible getting hit by your car, while you see nothing wrong (except sometimes a car jumping out of the way as if hit by an invisible hammer, ie your car on their screen)
However if it's just general lag (up and downstream the same) then you both have the same result. Your brake, steering and acceleration input arrives with a delay on their console and vice versa. If you have 10ms ping and they have 150ms ping, data between you two has 80ms delay. Exactly the same if the ping times are reversed.
Another extreme is when a player has really bad downstream lag, so bad they end up driving alone on the track. However when their upstream still works, their car becomes an immovable obstacle on everyone else's screen. Cars only get effected by contact on the console of the one that drives that car. You can't actually touch any cars on your console, only be touched by other cars. Your (forward projected) car on their console is what can collide with their car and affect their course, then you see the result of that contact on your console. If your car is never there on their console, their car can't be affected. However since their car is present on your console, it will push you and bump you out of the way as if you're simply not there.
Most connections are asynchronous with better downstream than upstream. So most people don't really see any problems while causing problems with their connection. The extreme jumpiness comes from jitter though, not just constant lag. Next to lag, there is stability or lack there off. Sometimes data packets even arrive out of order, which is when you get those ridiculously behaving cars that shoot forward and back.
Where does this all lead to for penalties. Your console will rat on you for colliding with a (projected) car from an opponent, whether it's actually there or not. You touch a laggy car, you risk a penalty or SR Down, whether anything really happens or not. However if your forward predicted car punts someone else off on their console (you see their car suddenly missing a corner as if braking too late, in reality bumped forward by your car) nothing happens, free pass.
So, yes there is a 'benefit' to be had from driving really close behind a laggy player, or if you have lag yourself. Your brake input will arrive late on their console, making your car brake late on their console. You brake as normal, their car gets bumped forward by your car braking late on their console. It's the same when taking the inside in corners. With lag, your car will go wider on their console then it does on your own, potentially pushing them wide without you ever seeing any contact.
When you have a yellow connection or are near someone with a yellow connection, keep more distance.