Latency is the time, in MS between the time you trigger a midi note event and the time you hear the result. MIDI notes have to be processed in order to hear them. There are a number of stages involved and all of them take a certain amount of time to accomplish. This causes a delay. This delay is most noticible if you are trying to play an external midi instrument along with an accompanying audio track. If the delay is longer than a few MS it will become noticable and, in extreme cases, it may make it impossible to play along with.

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