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I would recommend the Understanding Coordinate Management in the Geodatabase
whitepaper for the details, but simply put, *every* layer in ArcSDE has a coordinate
reference, which encompasses the coordinate system, the precision, the false offsets
and scales for the X/Y, Z, and M dimensions, and the tolerances for those dimensions.
The default offset and scale for the Z dimension are 0 and 1 (respectively), meaning
you could not capture data below sea level and only at 1 unit intervals. Therefore,
you need to define a Z component on the coordref any time you intend to store
coordinates with a Z dimension (that is, a Z value with *each* coordinate, not a
single "ELEV" attribute property for the feature).