[JoshuaEN]

Icons take up less space on the screen, which is useful if you are using a smaller browser window (or a phone screen).

[thedaemon]

But the trend, and the default GMail settings for UI spacing is far too spaced out. I'm finding it difficult to use some of the newer UI's with such wide spacing, without using the app fullscreen. Microsoft CRM, I'm looking at you. It's 100% not usable unless it's full screen.