To space out means to manually add non-printing metal blanks, known as spaces or quads, into a line or column of type. Compositors do this to justify a line so it fits perfectly tight in the composing stick, or to stretch a short piece of copy to fill a larger designated area. It requires careful judgment to ensure the added white space looks visually even across the printed page.
Heard on the job
The headline is coming up short, so space out the letters a bit more to make it flush with the margins.