I have a WordPress website in which people can link to existing or non-existing posts. So people can make links and they can link to pages/posts that don't exist. I explicitly made this possible, because it is in favour of my site and users.
You might ask how my 404 error page looks like... Well, it has a search box and it gives the error. Beside that, I have installed a plugin that will automatically redirect to related posts if the URL looks like a post that already exists.
My question would be: is my 404 error good enough and what about the plugin? How will this affect the SEO of my site? When is a 404 page a good thing?