V-Sync makes sure your FPS is equal to the refresh rate of your monitor(in most cases refresh rate is 60Hz, so 60 FPS capped).
It's best to turn this off when your fps gets lower then 60 or it will slow your PC way down because it's trying to get back to 60.
This is to prevent screen tearing during gaming(usually happens during cut scenes).
I always turn this off unless I see screen tearing happening(which only happens a few times: GTA IV for example). It's not turned on for me in UT3, never seen screen tearing in UT3
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Then it has to be something else, I have v-synch off but the fps is still the same, doesn't matter if I turn down the resolution as low as 800x600, still 60 fps