Valheim uses Voxel graphics, like in Minecraft.

The entire world consists basically of little cubes, like a LEGO cube that consists of visible and invisible cubic LEGO bricks.

Each cube contains information about its appearance, like the used materials, textures, colliders and the visible shape,
Any changes made to those "bricks'" parameters (like terraforming or structure building) are getting logged.

If you enter a seed, the game is going to check for the cubes parameters within your rendering distance and render these.
After this it's going to check for changes made and apply these to the cubes.

That's what you may see if you're entering heavily modified areas.
You can literally watch the game drawing the scene, expecially on rather weak CPUs and GPUs or in crowded areas.
First you might see the seed's origial appearance and then watch it transforming.

That's a pretty CPU intense calculation and therefore rendering takes some time.
The more cubes within you rendering distance got modified, the more load for both your CPU and GPU, the heavier the lags you might experience are .

It don't know exactly the rendering distance any more but If I recall it correctly it's somewhat between 250m and 500m from your position.
One brick's size is about 2x2m

So I'd advise you keep that distance to you buddies or don't build too big within that area if you want to keep a smooth experience