The pool races I have done group around 5 persons per lane based on their real predicted swimming time for that particular distance. When you are in the lane you have to talk to the other guys to find out ther times and start swimming based on the each ones swimming time. (It´s a bit of a pain in the$%& because people always tend to lie and will tell you they are faster than what they realy are. If that happens you will have to push yourself harder in moments in order to pass them).

The last pool race I did only divided the oly and the sprint distance competitors into different start times because we had 2 huge pools and pool races generaly don´t have that many fans around here but I guess that if there isn´t enough space the most common thing is having different waves based on age groups. But for pool races you will have to wait a lot more if you happen to be in a second wave. (you would have to wait for the first wave to come out of the water)

I wouldn't exagerate too much, at worst if you're faster then everybody else in your lane you'll get some draft as you blow by them. What I would do to get my expected time, would be to swim the race distance for time and divide to get your per 100m, and then take off a couple seconds as a fudge factor/ improvement guess, and send in that time.

I always give my real time when I have a pool swim!
I hate having to pass people but I don't want to be like everybody else giving fake times.

And i have to confess.....a tiny part of me enjoys passing them. "You thought you where that fast didn't ya'??? Aufwiederseen" during that instant I feel great cause I'm doing better than the others but I realy hate people doing that with their times.