Over time, and especially in heavy traffic areas in a yard, soil compacts. When the soil compacts it becomes much tougher for water, nutrients and air to penetrate locally into the soil. In the worst cases fertilizer and water will run off, following the path of least resistance, to somewhere else in the lawn.
When a lawn is aerated think of it somewhat like a paper hole punch for your soil. The aerator plunges a tine into the ground making a hole and on the way out the tine deposits a plug of your soil onto the top surface of your lawn. These holes allow oxygen, water and nutrients to reach further into the ground than before.
Oxygen helps root systems in all plants grow deeper and process more energy for the plant through respiration. Exactly like respiration in animals helps us survive and process sugars into energy. Without oxygen the plant can not fully process the energy that the root system stores up for the plant. In heavily compacted soil roots will remain shallow and the overall plant will not be resiliant to drought or as lush.
For all grass types you aerate when the grass is out of dormancy, growing its best and therefore not during a time of being stressed by drought or temperature.
For warm season grasses this is the spring before the heat of summer when the grass has already been growing for a few weeks.
For cool season grasses this is the fall after summer heat stress has ended.
Typically warm season grasses have the ability to self-heal. This is done through rhizomes and stolons, roots below ground and runners abover ground. They are cosidered good turf grasses for this reason. Overseeding is generally not recommended on these grasses.
Cool season grasses do not spread or "heal" in this manner and typically need to have seed applied or allowed go to seed. The fall is a perfect time to do this and the aeration holes make an excent place for the seed to grow.
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