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Probably?

It does, I did once to my sister. I limited her download speeds to 25kb/s >:D

The biggest issue for online gaming is mostly the upload bandwidth. Some routers have the possibility to set is per IP/MAC-adress. If not, try software like Net Limiter on the PC you want to limit.

To enjoy online gaming you need a clean line and a wired connection directly to the main router/modem, bandwidth limit is good for internet sharing while downloading/browsing etc but not while gaming, i always had and have my own extra line just for my gaming needs.

I used to use netcut but then it backfired at me when they started to turn the router on/off to see if the problem would be fixed ._.

It will help, but it's obviously going to depend on your internet and how much you restrict them. I play a lot of Counter Strike Source and I can tell when someone is watching a movie on Netflix, but it isn't that bad. When they have 2 HD movies streaming at the same time it gets worse, but still isn't horrible. I wouldn't want to play a competitive CS:GO match like that though. The fact that I get more lag when they have 2 movies streaming instead of 1 means that I get less lag when they are using less bandwidth, so limiting them should help. You are probably just going to have to experiment and see how much it helps.

Look in the router for QoS settings. :D