I remember as a graphic design student—in my introduction to typography class—a metaphor for letter spacing that has stuck with me for years: imagine filing the negative space between letters with water. They should be about the same volume. If you forget the 3D metaphor, it's actually surface area.
I've recreated and expanded an illustration from Benson & Carey's book, The Elements of Lettering, pictured below.
Usually tight spacing creates more unevenness in the spacing, especially in all-cap settings, so that's why you'll see all-caps tracked out often. It can look more elegant, and the extra space helps smooth out the texture (of positive and negative space).
The shapes are too tight on the left, which causes uneven negative space. The middle column is balanced, and as you can see, the circular and triangular shapes have different adjustments. You can see how it translates to characters in the Latin script (i.e. writing system) on the right.