In the perfect scenario, a trout rises and sips down your dry fly. If you wait too long to set the hook then, what happens? Right. It spits the fly.
And, sometimes, in fact, you foul-hook that fish. I remember once fouling a brown on the Bighorn, and after guide Dan Stein plucked the nymph out of the trout's tail, he said, "It ate it, and crapped it out … you were too slow." Well, not literally, but the point was well taken.