Line spacing is the distance between the baseline of one line and the other line. Well-adjusted line spacing makes texts readable and scannable. This means that your interface will be attractive to users so that they will spend more time in it, and it will be easier for them to reach a goal or get information.
Line spacing is measured relative to the font size as a percentage or number ratio. Usually, comfortable values for text are between 1.3 and 1.7. For headings from 1.1 to 1.4.
The proper line spacing affects the readability. If this value is too small or vice versa, too large, the text is difficult to read.
Dense text is difficult to read because the lines merge, and you have enough strain to focus on one of them when reading. If the lines are too loose, the text reads quickly, but when you move from one line, you have to look for the next with incredible difficulty.
The only optimally chosen line spacing value allows the user to read text comfortably.
Finding the proper value
The choice of line spacing depends on several factors. Unfortunately, there is no universal value you can use in all possible cases. Line spacing must be adjusted manually, depending on the conditions and context.
The starting point can be a value of 1.5 of the text size. This often works well for long texts with different fonts. However, this is only a starting point; you may need to change this ratio depending on the typeface, line length, and sometimes on text size you choose. But you can always start at 1.5 or 150% of the text size and then think about fine-tuning.
One of the proper choice factors is the subjective feeling of reading comfort. There are no strict rules in this aspect. Compare texts with different line spacing, read, and understand which value allows you to do it most comfortably.
Depending on the font params
The higher the font's x-height, the more line spacing may be needed. For example, Source Sans Pro has a small x-height, while Libre Baskerville has a higher one.
For typefaces with high x-height, it is quite reasonable to increase the line spacing slightly for comfortable reading. And for fonts with low x-height, on the contrary, decrease it a little.
Depending on the line length
The shorter the line or column of text, the smaller the line spacing can be. If the short text in the narrow column has line spacing with a large value makes the lines fall off each other.
This is especially true for headings because of their boldness. And if the heading is two lines, then with a high line spacing the second string will always fall off and seem to belong to something else.
The value of line spacing depends solely on the length of the line and how long or short the text is. And for headings it also depends on boldness. And it doesn't depend on the size of the text at all.
So there is no point in small text specially to reduce or increase the line spacing.