It reduces the damage drop off distance. Close up, your weapon will be exactly the same, but when it gets further away, it will do less damage. Reduced range just means it will do less damage closer than normal. What it doesn't do is reduce the minimum damage of the weapon. An SMG will always do a minimum of 18 damage which gets a 6 hit kill no matter what the range. I hardly ever notice the silencer nerf except every now and then when I get several hitmarkers.
If your bullets are missing, it's probably lag. Rapid fire is very useless because lag makes half the bullets miss. If you want a higher rate of fire, you might as well just switch to the MP7 or Vector and throw on the extended clip.