Does postgres efficiently re-use space from deleted rows?

Question

From the docs:

In PostgreSQL, an UPDATE or DELETE of a row does not immediately remove the old version of the row [...] But eventually, an outdated or deleted row version is no longer of interest to any transaction. The space it occupies must then be reclaimed for reuse by new rows, to avoid unbounded growth of disk space requirements. This is done by running VACUUM.

When vacuum runs, does it efficiently free the space occupied by the deleted rows by rewriting the entire block, or does block fragmentation occur with new rows fitting into available 'holes' only if they are smaller than the deleted row that has made way for them?