Leeway space is the size differential between the primary posterior teeth (canine, first and second molars labeled C, D and E in the picture), and the permanent canine and first and second premolar (labeled 3, 4 and 5). Usually the sum of the primary tooth widths is greater than that of their permanent successors. So when these primary teeth fall out, there is usually a slight amount of space (about 2.5mm per side in the lower arch and 1.5mm per side in the upper arch). We can use this to our advantage to gain space to help relieve crowding. If nothing is done to preserve this space, the permanent first molars almost always drift forward to close it.
"E" space can be thought of as a subset of the leeway space. This refers only to the size differential between the E's and the 5's as per the picture above. The distinction is made between Leeway Space and "E" Space since in the typical eruption pattern, the lower E's are the last primary teeth to be lost in the lower arch, and frequently the 3's and 4's are fully erupted. If the orthodontist sees the patient after the 3's and 4's are already erupted, the only size differential that needs to be taken into consideration is that between the E's and 5's.