When Steam VR determines that an experience is lagging or dropping frames, Motion Smoothing automatically kicks in. It drops an app's framerate from 90FPS to 45FPS and generates a synthetic frame for every real one to mimic real 90FPS. If things get especially bad, it can generate two to three frames for every real one instead. Steam explains that the feature "dramatically [lowers] the performance requirements," allowing PCs with lower end hardware to "produce smooth frames."
Take note, however, that the feature will not work with the Oculus Rift or with Windows Mixed Reality headsets. You can only take advantage of it if you have an HTC Vive or a Vive Pro, and if you're running Windows 10 -- all you need to do is right-click on Steam VR and select beta under Tools in Library. You can always switch it off in case it doesn't work as intended, though, or in case the experimental version makes things even worse.