"Latent" means it (the space) is there all the time but usually not exposed or apparent. Latent space is a high-dimensional space that is not legible to humans, so normally reasoning gets constrained to progress in tokens instead so that it can be evaluated.

I think https://arxiv.org/abs/2412.06769 is a good description of the premise of reasoning in latent space, although https://arxiv.org/abs/2604.15726 argues it's already what really happens.