Originally Posted by LV2TNDM

I'm sorry, but your post CLEARLY indicates you don't understand how a top cap is supposed to interface with the stem. A 1mm gap is indeed a problem! It indicates that the top cap is not providing pre-load onto the stem and thus the headset in the Aheadset-style system. It definitely looks like the top cap is bottoming out on the steerer tube. Not supposed to do this.

Without direct contact with the stem, the headset will not be preloaded and the bearing will be too loose and exhibit play. This is bad for the bearing and may damage it. It's also bad for everything else - frame tubes, headset cups, crown race, etc. If loose enough, this could lead to catastrophic failure. Unlikely, but in this libelous world, it has to be said. A really loose headset could injure or kill a rider.

So yes, a 1mm space could be VERY SERIOUS!

And it appears obvious to me that the OP also doesn't understand how this headset functions. It's relatively simple in theory, however it can be difficult to explain via written word and then properly interpreted on the other end. Cyclezen below is correct, however his statement about "extra space" could easily be misunderstood! I strongly recommend the OP take his bike to a reputable LBS and have them determine if the steerer tube needs an extra washer, trimmed a little bit, or who knows what else may be going on in this situation.

Either way, it is not a good idea to not know EXACTLY what you're doing when it comes to headset and fork/stem installation and headset adjustment. The downside is just too great.

Good luck.