eTA for Canada - does the space in the passport number matter?

As your eTA was accepted I would not be too worried. In my experience, Canada customs are pretty relaxed: I did not even get any problems when they forgot to put an entry stamp into my passport. Although I do not know whether your passport number is supposed to contain a space, I do not think you will run into any problems as the space is clearly visible in your passport.

My experience: My passport number does contain a space which does not show up in the MRZ though. I applied for the ETA using the passport number with the space. I had no issues getting into Canada (Vancouver).

You shouldn't reapply. You didn't specify the country issuing your passport but it doesn't matter: every country uses a very rigid format which doesn't allow for misunderstandings. It is never possible to have one passport with AB 123 and another with A B123 for the number so when they match the eTA with your passport, there's no problem from a space. For example, here's an unofficial list of EU passport numbers and more can be found here. These documents might be unofficial but they are Microsoft security compliance documents not just some random travel blogger so it's fairly reliable. As far as I can see only Austria allows a space in their numbers and the format, again, is rigid: one letter, optional space, seven digits. Whether you write it out or not, there is no ambiguity. Most countries will do zero, one or two letters followed by all digits. I suspect you put a space between your letter(s) and the digits, again, that's no problem.