The theoretical lap combines the best sector times from different laps into one impossible-but-achievable target. If your best S1 was on lap 3 and best S2 on lap 7, the theoretical time is S1(lap3) + S2(lap7) + S3(best). The gap between this time and your actual best lap reveals unrealized potential.
A gap under 1% means you are extracting nearly everything the car has. A gap above 3% means there are clear sector-specific improvements available. LAP shows which sectors contribute most to the gap, giving a prioritized list of where to focus practice laps.
Professional drivers typically operate within 0.5-1.5% of their theoretical on familiar tracks.