On my 34 there is a delrin / plastic spacer ring occupying the space that the arrow in the photograph is pointing to. When I removed that spacer, you could lift the rudder up and down by that amount. The downward motion would stop when the quadrant (which is thru-bolted to the rudder post as Tim said) came in contact w/ the top of the packing gland. The upward motion would stop when the top of the rudder came in contact with the bottom of the hull.
You can tighten the gland enough so that, at least with my muscle force, the rudder post becomes impossible to move up and down. I found that the "feel" of the steering was noticeably reduced w/ the gland that tight, so I backed off some on the gland to regain that movement- but not enough that it leaks.
In the water remember that the rudder is fairly bouyant, so if there are no spacers and the gland allows some up and down movement of the rudder post, you can (and I did) get some thumping under certain sea conditions as the rudder moves up and down. So we have a spacer between the packing gland and the quadrant, as well as a thinner spacer between the top of the rudder and the bottom of the boat. Together they minimize the slop in the up and down dimension.
Hope that helps...