That specification is the spindle runout. They are claiming the spindle runout is .0002 or less. That doesn't mean you can turn with that accuracy.
Factors that would affect your accuracy in real life conditions would be tooling and setting thereof, hardness of the work, adjustment of the machine, feed and speed (does a prazi have power feed?), & coolant use.
Typically when I need to make gauges on my Southbend I use a toolpost grinder because it is too difficult to take off .0001 with a single point tool, and its hard to hit the dimension dead on the first time.
Even in my production days we were expected to turn to tenths with a Hardinge turret machine, and it took a lot of tinkering and adjustment. With turret tooling you make you adjustments one time and lock it in. Plus we had to let the machine run for awhile and let the bearings reach operating temperature.