A magnetic pistol on a torpedo allows the torpedo to detonate underneath the ship, instead on impact on the side of the ship. As an explosion underneath a ship is contained between water and the ship, far more damage will be done to the ship. The explosion will lift the ship out of the water and may break the back of the ship, splitting it in two. Any hole created by the explosion will be on the bottom, causing more flooding. In the game you need to set depth of torpedo to go just under keel of target for maximum effect. Easy to do in calm seas, harder in rough seas. The ship may be too high when the torpedo passes under it. Also it has been my experience that in rough seas, magnetic torps will explode prematurely. On the other hand, when the angle that the torpedo hits the target is considerably greater than 90 deg. a magnetic set at the impact depth may be effective whereas a impact fuse may just bounce off.
Of course in real life things were more complicated. Interesting article on German torpedo problems in WW2.
http://uboat.net/articles/?article=23
