Why is label size altered when changing label spacing

[iangozer]

I am working on some improvements to the label creation / layout, I notice that when you set values for label spacing it decreases the value for label dimension.
I am working on the assumption the label width should always be the width of the label on the sheet and the spacing should be the space between each label.
So, if I set label width to 3" and horizontal spacing to 0.5" the value returned by $settings->labels_width is 2.5"
I'm sure this is done for a reason, but I just can't see what it is, I am guessing this is why so many people get stuck with labels not printing as expected.

Is this the expected behaviour?
Is there a reason this behaviour couldn't be changed?

[iangozer]

@snipe @Godmartinz