Each Voxel in 7 days to die does have a number of properties representing its configuration (block type, rotation, damage, meta, meta 2, block density and so on...). 'Block Density' is one of those properties.
It's used to change or deform the default shape of terrain blocks, e.g. forest ground. There are 255 possible density values (-128 ... 127). The shape of a terrain block depends on its own density value and (and this distinguishes it from the other properties) on the values of adjacent blocks.
Example
Ingame:
Editor (the numbers are density values, white squares represent air blocks, blue ones are concrete and grey is dirt):
Conclusion
Block density allows us the use millions of different blocks shapes (e.g. useful for smooth/less blocky landscapes).
It's what smooths terrain next to cube blocks as well, so that you don't have that gap. It's also what causes those "dorito tears" you get sometimes when digging, because not only does the block density make a block look a certain way, the block NEXT to its density does as well.
You can cause "texture bleeding", too, which is a cool effect... like say for railroad tracks, I took the wooden poles and "sunk" them into the gravel ground so that they weren't so... blocky.