Initiative is a system of determining the order of actions in battle. Before the first round of combat, each combatant makes a single initiative check. Each round, the participants act in order from the highest initiative result to the lowest.
In NWN2 every creature uses their own combat round, based on the time they take their first action. Because there is no synchronization of combat rounds, Initiative has a negligible effect on the order of combat. Creatures will act in the order that their perception scripts fire and/or the player queues up a combat round. There is a slight delay based on the initiative that gets applied to the first action of a creature, but it is much less than human reaction time.
Initiative only benefits the first melee attack and due to real time game play, to keep the Initiative if successful requires charge attack. As a delay or waiting for an opponent to attack will forfeit the Initiative.