What is @xml:space about?

What is @xml:space about?

Jesper Tverskov (at http://www.xmlplease.com/xml/xmlspace/) and Dimitre 
Novatchev (at http://stackoverflow.com/questions/11372222) say that 
@xml:space is, like <xsl:strip-space>, only about what to do with 
whitespace-only text nodes. Dimitre suggests that the spec might be 
ambiguous but that all implementations he knows read it as he does.

But based on XML spec, fifth edition, 2.10 White Space Handling 
(http://www.w3.org/TR/xml/#sec-white-space), I think @xml:space is for 
telling an application whether it can proceed with whatever it was 
planning to do with white space inside a text node (such as collapsing 
it as an XSLT app making HTML might) or whether the application should 
preserve the white space found in the node. By this understanding, if an 
application collapsed white space in nodes, the white space-only text 
nodes too would get collapsed, but that would be an indirect (and 
inefficiently reached) result.

Does @xml:space refer only to treatment of white space-only text nodes 
or to treatment of all text nodes?

Thanks,
John