That's correct, space is re-usable but still Table Fragmentation.

"Table fragmentation will result in longer query times when a full table scan is performed. Since data is not as evenly packed in the data blocks, many blocks may have to be read during a scan to satisfy the query. These blocks may be distributed on various extents. In this case, Oracle must issue recursive calls to locate the address of the next extent in the table to scan." (1)

(1) SAP; Monitoring Table and Index Fragmentation; http://help.sap.com/saphelp_bw30b/he...bd/content.htm