Interpolation allows you to smooth out the effect of running physics at a fixed frame rate.
By default interpolation is turned off. Commonly rigidbody interpolation is used on the player's character. Physics is running at discrete timesteps, while graphics is renderered at variable frame rates. This can lead to jittery looking objects, because physics and graphics are not completely in sync. The effect is subtle but often visible on the player character, especially if a camera follows the main character. It is recommended to turn on interpolation for the main character but disable it for everything else.