What is the typographic reasoning here? Does it make the text look less crowded?

What is the typographic reasoning here? Does it make the text look less crowded?

You have not given many clues (it is always best to provide a complete document, as below) but I would guess, looking at the poor asymmetric spacing above and below the display, that you have (a) a non zero setting of \parskip specifying inter-paragraph space and that (b) you have a blank line above the equation.
Leaving a blank line before the equation is always wrong and always generates a spurious "white" paragraph before the display but the effect is more noticeable if \parskip is non zero. Compare the two displays below, with and without a blank line before.
\documentclass{article}
\setlength\parskip{\baselineskip}
\begin{document}
aabbzz aabbzz aabbzz aabbzz aabbzz aabbzz aabbzz
aabbzz aabbzz aabbzz aabbzz aabbzz aabbzz aabbzz
it recursively evaluates
\begin{equation}
h_i = f_\theta(h_t,x)
\end{equation}
where $h_i$ is something and something else is something else.
aabbzz aabbzz aabbzz aabbzz aabbzz aabbzz aabbzz
aabbzz aabbzz aabbzz aabbzz aabbzz aabbzz aabbzz
it recursively evaluates
\begin{equation}
h_i = f_\theta(h_t,x)
\end{equation}
where $h_i$ is something and something else is something else.
\end{document}
\begin{equation}in your source? – David Carlisle Mar 09 '16 at 12:39