I know it's predominantly a gameplay mechanism, but how are the Lone Wanderer or Courier meant to use VATS in the game? Does the Pip-Boy produce some form of HUD which helps them target the enemy?

Or is there no explanation in lore?

It's actually a holdover from the original games in the series, Fallout 1 and Fallout 2. Those games were turn-based, all actions in them (movement, shooting, reloading, accessing inventory, etc.) while in combat mode used action points, and VATS was the interface used for combat mode. Bethesda decided to keep it as an optional combat mode for Fallout 3, probably as fan service more than anything else. Obsidian incorporated it into New Vegas, but made major changes to it, which nerfed it a lot compared to its implementation in Fallout 3.

Basically its just a wrist mounted computer used to aid in the calculation of bullet trajectory, or weapon swing, in order to inflict the most damage.

http://www.youtube.com/watch?v=-xKZaQqjP1w

Thank you, that's what I was looking for. Wasn't sure if it brought up some form of readout on the enemy to calculate the most efficient bullet placement, wind velocity etc, or projected some form ofholographic display from the screen.