It's client side only, there are at least 3 people in the lobby here. The two players fighting may or may not have mods visual mods installed, we have no way of knowing. The third person in the lobby is just a spectator and we're getting their version of the game streamed, he definitely has the booby mod installed. Since the mod is only changing the way the game looks it doesn't cause issues when playing online, a gameplay affecting mod would cause the game to desync. Although there are some mods that show players the normally invisible hurt boxes and hitboxes that would definitely count as cheating.

Chun Li is legendary levels of thicc for sure.