MattJ wrote:So is there dead space under the bottom of the filter basket between the basket and the portafilter?

The upper lip of the basket makes a watertight seal against the grouphead because it's pressed tightly against its rubber gasket, but the underside of the basket lip does not make a watertight seal against the portafilter. In fact, if it did, the espresso flow would be more likely to go "glug glug" as a vacuum formed behind the outgoing liquid (think of pouring out of two jugs, one with a hole punched in the bottom, one with its bottom intact). Some portafilters have a small notch cutout on the lip to allow air to more easily flow under the lip of the basket (e.g., older Rancilio commercial portafilters).

On a related note, that's why if you're building your own portafilter pressure gauge, the basket must be removed.

Not sure why it's confusing, but I'll try again.

I refer to the liquid exiting the bottom of the basket that eventually makes its way out the portafilter spout. See Randy's cross-section diagram of a standard portafilter; I refer to the space he labeled "3". If that space allowed no air to enter, espresso would flow less readily from "4" due to the formation of a temporary partial vacuum, especially if the exit port were small. Some portafilters have a notch in the rim for this purpose, some have larger exit holes, and some manufacturers do nothing special because they aren't concerned about an occasional "glug glug" in the espresso stream.