While all type can be letter spaced to produce normal, tight, very tight or loose settings, they can also be overall or selective (Kerning). As letter spacing is chosen on personal preference, your first priority should be legibility.
Reading many long lines of type causes fatigue, the reader must move his/her head with the length of each line to search for the beginning of the text. A line that is too short often breaks up words or phases that are generally read as a unit. The length of the line depends, to certain extent on the size of the text. A good rule of thumb for lengthy reading is to set a line about two and a half alphabets long.
Line spacing / Leading
This is one of he most important areas of text type setting. Just when to use line spacing and how much, depends on a number of factors;
Leading, as well as making reading easier, has an important aesthetic function. Although readability in most typefaces is improved with a little leading. The more leading, the greater the tendency for the lines to drift apart and for the type to appear grey. With too much leading, the white space between the lines becomes more important than the lines of type themselves, which seem to float loosely on the page. In small quantities, this affect might be desirable, but not for sustained reading. There is an ideal amount of leading.