I don't remember the details but it had something to do with the esm's load order and LOD trees. If your esm loads in the 01 spot, your LOD is fine, but if it loads anywhere else, you end up with 'floating (LOD) trees' from the 01 esm. (Or something to that effect.) I never got around to testing it myself, but Vagrant0 is a pretty meticulous modder so it's worth checking into. It's basically a compatibility issue for people playing with multiple worldspace (esm) mods.
Yeah, I'm in the midst of using Vagrant0's Wiki article right now. I've been editing his article as I work. It still read a lot like a forum post and wasn't clear on a lot of things. I left him a message on the forums and haven't heard back from him yet.
I noticed that the http://www.gamesas.com/index.php?/topic/1158602-tamriel-worldspace-modding-project/ uses .esps for their world spaces - and they are HUGE worldspaces. But the instructions in their forum post say to convert the mod to an .esm when modding it and then to convert it to an .esp for publication. I was wondering if maybe the 01 Index issues disappear when a worldspace mod is converted to an .esp
Like I said before I'm wanting to clarrify this not only for myself, but also for the Wiki article http://cs.elderscrolls.com/constwiki/index.php/Creating_Large_Worldspaces (Vagrant0's article to which I've done a lot of work on).