With an arduino and an LED, it's simple to test the limits of one's perception. Copy one of the hello world LED blinking programs (basically a square wave to a GPIO pin) and modify the frequency of the blink. I see a rapidly blinking light around 15ms period, and a solid light around 10ms period. To me that implies that my human sample rate is about 12ms, although there could be other factors at play, such as capacitance in the circuit.
That test does not really measure the ability to notice latency. The simplest latency test I can imagine would be a system where you press a button and LED lights up (or a sound is played). Do that in pairs where randomly either the first or second trial has some latency added in. Then ask the subject which one seemed to respond faster. Rinse and repeat about gazillion times with different amounts of added latency.
The problem with such setup is that it relies on conscious notice of latency. It is very likely that the boundary where latency begins to impair performance is far lower than where you actually notice it.
A more sophisticated test would be to measure e.g. typing speed vs latency. You'd probably need some customized hardware to get low baseline latency so that you can then add latency in a controlled way. Even then I imagine that quite many trials would be needed to make any conclusions.
Another way would be moving the mouse and seeing the cursor lag behind. Old wireless mices could have some real bad lag. It feels somehow like holding a garden hose and trying to hit different spots on the lawn with the water.
There was people that just didn't notice anything but everyone playing Quake halfway good had bad problems with those. Some went so far as to only use wired mices with ball, not even optical sensor.
The thing you're measuring here is called the flicker fusion threshold--essentially the transition point between seeing on/off/on/off and a solid light--and is a little different from latency. Latency would be more like the delay between the LED turning on/off and your perception of that change. That delay is at least 100ms, and often a bit longer, though it depends on a lot of factors.
If you want to test latency perception with an LED, here's what you would do:
1. Connect an LED and a button to the Arduino.
2. Program the Arduino to have the LED flash when the button is pressed.
3. In the program, add a constant delay between the button press being registered and the LED flashing. Increase this delay until the LED starts flashing noticably after the button is pressed.
Check out http://isitsnappy.com (not my app, I've just used it before), lets you measure latency empirically. Set up a loop where you press a key as soon as something appears on screen, and that will give you your end-to-end latency.
move the board, or sweep your eyes from left to right across the table it's on. You'll detect the individual events, with a sense of order. your eyes are edge triggered with a relatively slow reset. I think you'll find you can detect much finer grained deltas in time.
Edit: s/frequency/period/