It's slower when used as an output option because it only has an effect on ffmpeg's output; that is, ffmpeg literally has to decode the whole stream up to that

It's slower when used as an output option because it only has an effect on ffmpeg's output; that is, ffmpeg literally has to decode the whole stream up to that point because it doesn't know it can seek. I believe this has no effect on whether or not you can cut precisely - if transcoding is not enabled, even if ffmpeg is sticking the frames before the first keyframe in the output file, they're effectively garbage from the point of view of the decoder (which might explain why you see artifacts in some players).