Visual Studio Team Foundation Server; press the Configure User Tools... For Extension, enter .*; for Operation, choose Compare; for Command, enter path of executable (e.g., C:\Program Files\Beyond Compare 3\BComp.exe); for Arguments, enter %1 %2 /lefttitle=%6 /righttitle=%7 /nobackups.
With these programs, it is easily possible to specify ignore whitespace (and many other options).
It is represented in text files by special, nonprinting characters like spaces, tabs, and linefeeds.
The significance of whitespace depends on how you want to read or process differences.
(*) Feature suggestion: store this in a cookie or the user profile so it persists for every user.