How does client side hit detection work with projectile based weapons, I was under the impression that it only works with hit scan based weapons?
It works with projectile weapons the same way it does with hitscan: the client decides if it gets a hit. That's all there is to it. Every multiplayer flight sim ever made has used client-side hit detection for guns, to give an example.
The reason many shooter games avoid using latency compensation for projectiles is because those games tend to have very slow projectiles (rockets, plasma balls, spinfusor discs, etc) where seeing and reacting to the projectile in flight is an important gameplay mechanic, so having the projectiles synched across all clients, both shooter and target, is a high priority.
In Red Orchestra, the projectiles are invisible and move far too quickly to react to even if they were visible. Only the shooter will ever be aware of their behavior, so there's no gameplay drawback to making the shooter authoritative.