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It works by changing the average particle size in the mixture of stuff that we call "soil." The larger, more irregular the particles in your soil, the more airspace there is between them. It also works by "feeding" soil-dwelling worms and microbes, who break down the organic matter in the topdressing and release nutrients to the soil. Finally, it works by allowing the soil to hold moisture better during dry conditions and letting excess moisture drain away when rainfall is heavy.