This video is a very good explanation:
So what you have is a compromise between delay between clients and having a smooth gameplay experience. I urge everyone to watch that video even if you never played Overwatch since it does point at a lot of common techniques used in games to give you the illusion of a smooth gameplay that is fundamentally limited by the laws of physics.
So in massive games what you need to have is a complex combination of several techniques (the balance of which is something the developers have to nail) and, perhaps, try to have a dynamically-scaling per-client interpolation (objects far away update less often, objects close to you update more frequently).