What does playing with space mean on guitar?
Playing with space means strumming less frequently. Leave breathing room between chord changes or parts so what you do play is more deliberate.
Space in music isn't about the chords or notes you play, but about the duration of what you play. Once you play with fewer strums and let chords or notes hang or ring out, you've just created more space in the music.
Instead of strumming continuously through a section, you might strum once on beat one and let the chord ring until the next change, or strum twice per bar instead of eight times. The chords are still there but there's more space before the next chord, which makes each one feel more deliberate.
Space changes how a song feels
When you strum continuously, every beat carries the same weight. There is usually less emphasis on certain chords, though you can emphasize certain chords by briefly letting a chord ring out for a bit longer before jumping back into the strumming pattern. That is a bit of space.
On the flip side, if you increase the strum pattern - even briefly to emphasize a chord - you can decreasing space to create a change in how that part of the song feels.
Where space matters most
The verse is where most guitarists under-use space. The purpose of a verse is to tell a story by the vocals. Guitars and the rest of the band should leave space for the vocal to tell the story how they want. The more varied the vocal is, the less opportunity there is for unique guitar parts. You want to lay the foundation for the vocals to lead the congregation on a journey through the verse and a dramatic guitar part would likely conflict with a wide-ranging vocal.
Quiet or stripped down moments. The opening of a soft chorus, the first pass of a bridge, or a moment where the worship leader signals the band to pull back all call for wider space between strums.
With a full band. The more instruments playing simultaneously, the more space each individual instrument needs to leave. There can be exceptions like songs that are fast and full likely require a big chorus, but need space on other sections of the song. A guitarist playing with keys, bass, drums, and another guitar should give more space than a guitarist playing alone.
Space and pads
When worship pads are present, space becomes even more effective. The pad provides a continuous underlying sound so when you play infrequent strums, you aren't actually leaving dead space. Instead, you're letting the space be filled by the pads for the congregation. The combination of a sustained pad and sparse guitar strumming is one of the defining sounds of contemporary worship.