I don't have all the answers but here's some ideas...
I am not *SURE* but I believe the final collision check EARLY or LATE determines, as you might suppose, when the game checks to see if a weapon has hit its target. A LATE setting would theoretically simulate a "penetrating" weapon that would pass into/through an object before exploding, while an EARLY setting would allow air burst before reaching target.
In a related matter, I discovered an interesting setting in the .JT files from studying some of Vark's files: proximity fuze radius! I am not sure how this setting works with the above settings.
Look for the setting near the bottom of the section called:
;----------------
START OF PROJ_TYPE ----------------
.
.
.
byte 0
byte 9
word 4
word 500 <--- fuze radius
byte 0
byte 18
byte 18
ptr fireSound
word 6000
word 0
word 1200
word 100
;---------------- END OF PROJ_TYPE ----------------
As you can see here, the fuze radius of this particular weapon (the M26 rocket) is set to explode when it gets within 500 ft of target. Higher values will cause the weapon to explode over a target, but it also means radius of the weapon blast may have to be adjusted to ensure proper damage from the blast. Lower values will allow the weapon to home all the way into the target.