Does the physical distance between players effect latency?

[blandis]

That is correct. As stated above there is no way to eliminate the latency that is caused by the natural scientific properties (the physics of electrical signals travelling through communications cables). JK simply attempts to minimize the portions of the total round-trip latency that can be controlled. "Compensate for latency" is only possible in scenarios not requiring synchronization in real time, like when 2 people are trying to play in sync. Audio recording is a scenario where recording input latency can be compensated for, by delaying the prerecorded tracks by the same amount as the measured latency. Even this "local" latency can be distracting, hence many audio interfaces have "direct monitoring" so that the performer being recorded can hear themselves without the roundtrip latency going into the DAW, processed, and back out to the monitors/headphones.
Keep in mind that you as a performer routinely tolerate a small amount of latency when jamming with others, because the speed of sound is much slower than the speed of light (340 meters/sec for sound, 300 million meters/sec for light in a vacuum, >150 million meters/sec for electrical signals); roughly 1 foot of separation between musicians is about 1 ms of latency. If you are a 5-piece band rehearsing in a small basement, you can become a very tightly synced group. But move to a large empty hall/arena and spread very far apart, things would sound a mess, and not just due to the reverbs and echoes, but due to the different delays of the other musician's sound that you hear, caused by the speed of sound delay between each other. Hope this helps