The vertical space between lines of type is called leading (rhymes with sledding). Leading is measured from the baseline of one line of text to the baseline of the line above it. Baseline is the invisible line on which most letters sit.
The default auto-leading option sets the leading at 120% of the typeface size (for example, 12‑point leading for 10‑point type). When auto-leading is in use, the leading value appears in parentheses in the Leading menu of the Character panel. You can change this default auto-leading by choosing Justification from the Paragraph panel menu and specifying a percentage from 0 to 500.
By default, leading is a character attribute, which means that you can apply more than one leading value within the same paragraph. The largest leading value in a line of type determines the leading for that line.