ok, so what exactly will happen in an engine if the spark plugs are either gapped smaller or larger than spec?

It will run like its out of tune, simply. You will not see as good performance out of an engine with badly gapped spark plugs.

You want the biggest fattest spark that your ignition system will produce reliably under all conditions. For us, that'* 0.060" if I'm remembering correctly. If the gap is less than that, the spark won't be as big; if it is a lot more than that, the spark may not be able to jump the gap under heavy load and high compression, and the ignition is not as precise or reliable.

Correct, the larger the spark the better and more complete the burn in the cylinder is. Hoewver, when adding boost the extra cylinder pressure can "blow out" the spark before combustion is complete causing misfire like symptoms and incomplete burns for lack of power. By reducing the gap in higher boosted cars you can eliminate this problem. For example in the INTENSE Turbo Car we run the gap at .035 and in my car it is about .050