It's been explained dozens of times, but...
Effect with essentially measures how much better you do with it (compared to how you normally do) than the average player does with it (compared to how THEY normally do). Effect without is the exact same thing except for when you don't gain the card.
That is what I thought. Is that actually a useful model at all of what it hopes to measure? Like I'm somewhat unconvinced that my -1.6 with Chapel and -1.5 with Laboratory really indicate that I'm in the bottom 10% of players in understanding these highly complex cards.
on high players is possibly a sign of variance, but you can't discount the possibility that you simply don't play it very well.
In the context of a discussion where it was posited that "oh, I'm very good at identifying when that card is significant," it is far more likely that a) that assumption was wrong, or b) that Possession is in fact a high variance card, than c) he is in fact very good at identifying when Possession is important but despite that somehow bad at using it when it actually ends up in his deck. There's just not a plausible failure mechanism for that last stage given the assumption.
I didn't say that " I'm very good at identifying when that card is significant", I said that I'm good at identifying when it's a waste of time. Similar, but also kind of the opposite!
But it is also true that I'm not that good at altering my play style to deal with cases where Possession is strong. My default assumption when Possession is on the board is to dumb my game down and go for a fast money-ish deck that greens quickly. (Or perhaps one that relies heavily on attacks and VP chips.) This is a great thing to to as Possession defense, but not usually a good thing to do when you realize that Possession is good enough that you want one yourself! Building a deck that can play lots of Possessions, but is also crappy enough that it doesn't give much benefit to opponent's Possessions, is one thing I'm quite horrible at, and is a quite different skill than recognizing when to just lay into, say, the Hoards and Duchies instead.
Many obviously powerful and swingy cards are going to have negative Effect With rates for the reasons you describe: I definitely believe that for, say, Mountebank and Lab (Chapel I actually have a positive Effect With, because I'm usually better at heavy-action than heavy-Treasure decks and that's where Chapel is best). But there are other reasons for a bad Effect With, and I don't consider myself a good enough player that all my negative Effect With rates are due to variance: some are just cards I've played badly.
tl dr: I think your option C is closest to the truth, in my case. I also don't think that Possession is quite as low variance as WW does, but he's also a much better player than I am.