I've often wondered this myself. Apps will occasionally leave crud on the sdcard but installing/uninstalling apps doesn't seem to garble up the internal storage, at least not that I've noticed.
Fragmentation is what I believe you are referring to. This is not an issue on the Droid since memory is handled virtually and not physically as on a hard drive connected to your Windows PC. In the PC scenario, when you add/remove software, the disk's free space starts to resemble a big chunk of swiss cheese. The system slows down because the read/write head on the hard drive has to move over multiple areas of the disk to pull the information you are looking for. The more fragmentation, the longer it takes the hard drive to respond, making your computer slower.
In the Droid, there are no movable parts to the memory/storage process. Software programs are managed within their own virtual machines meaning that they operate separately and independently. Once they are removed from the phone's memory, more virtual space is now free for your next application.
There are issues such as memory leaks which cause most force close errors, but that's an entirely different issue.