From the spec’s rules for list items:
- When the first list item in a list interrupts a paragraph—that is, when it starts on a line that would otherwise count as paragraph continuation text—then (a) the lines Ls must not begin with a blank line, and (b) if the list item is ordered, the start number must be 1.
In your examples, the first element of the first list item is the paragraph “One”. Your first example does not work because the sublist interrupts this paragraph, while your second example does work because it has a blank line between the paragraph and the sublist.
There are no newlines being created. The visual difference is a loose list versus a tight list. A tight list by definition involves paragraph interruption. But because of the above rule, you cannot interrupt a paragraph with a list item numbered other than 1.
To understand the reasons for this, read the spec section for Lists, which discusses loose vs tight lists as well as why “we allow only lists starting with 1 to interrupt paragraphs.”
This issue has been extensively discussed in this forum:
- Blank lines before lists, revisited
- original spec discussion: Requiring a blank line between a paragraph and list
- most recent revisit: Ordered lists and sublist starts