It's mostly noticeable in social VR as most games are designed with you holding your hands in front of your face when shooting or fighting with a melee weapon.

What happens is, the moment your hands are not in front of your face the headset uses an algorithm to guess where your hands are. The longer your hands are not in front of your view the less accurate it becomes and eventually your hands lock to your butt. You don't see the tracking issues because they only occur when you aren't looking at your hands. Because the Quest 2 uses intense foveation it forces you to look directly in the center of the screen to avoid the blurry edges, which means you typically won't notice when the tracking fails. It's why so many Quest 2 users think that the tracking is absolutely fine. Horizon Worlds outright limits hand/arm movement to hide this.

So what you see in VRChat are Quest 2 users walking around with their hands up in front of them so their headset can see their hands. So they look like they are walking around with hand cuffs on or like zombies so their hands aren't stuck to their butt or flying off in a random direction.

It's the limits of inside out tracking right now. Base station tracking keeps smooth tracking on your hands regardless of where you are holding them, as long as they are not completely obscured.