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In the third party server system, your video stream is funneled through a server belonging to the company hosting your IM. Because bandwidth is extremely expensive, and they are essentially giving you this service for free, they naturally want to limit the bandwidth your video is using. Therefore, the size and quality of the image stream avaliable is going to be small and very limited in quality. Consider how much your high speed internet connection costs, then multiply that by the tens of thousands of simultaneous users that Yahoo is trying to host.
The advantage to a third party system is if you have a router or firewall, you don't usually have to do any special configuration to your router to use the service.
The disadvantages are lower quality video, and the possibility of denied service if the host is too busy with other things.
In a Peer to Peer system the video is sent directly from your computer to the other persons computer, bypassing the third party computer all together. In this system the only bandwidth constraint is the speed of your Internet connection and that of your Internet Provider. When you understand this factor it becomes fairly obvious that you can get a much better picture using a Peer to Peer system.
The advantage to Peer to Peer is higher quality and larger image capability.
The disadvantage to Peer to Peer is that if you have a router or firewall, it must be configured to pass the data stream through to your computer. By default routers will block this stream.
The two most common reasons your camera may seem slow as viewed on your computer: