Declarative languages that are bound to a visual tree are often heavily nested and also tend to be refactored frequently. Maintaining the formatting for these languages can quickly become a chore, even with 'reformat' features.

Virtual formatting lets the editor handle indentation in the same way it handles syntax-coloring. Indentation of text is immediate and fluid as edit operations are completed; text just re-flows when the structure changes, there is no 'reformat' button.

No tabs or spaces are inserted for formatting, indentation is more akin to that of word-processors (but actually a lot smarter).

This video shows virtual formatting in action:

http://youtu.be/IFJHG1EnS0A