Fatal tree diseases like Phytophthora root rot can be spread to healthy trees, shrubs and plants if mulch made from trees with the disease is used. Bark beetles can also be spread in this way. The trees and shrubs cleared from land are commonly ground up and left in piles to compost, which can reduce some bacteria and fungi, when done properly. If the piles do not heat up to a high enough temperature and are not turned regularly, though, the bacteria and fungi flourish.
How well the mulch works to retain moisture and reduce weeds depends on how small the pieces are and whether or not it contains fine particles. Mulch that contains a high percentage of fine particles can help keep the moisture in the soil but more often it keeps water from being absorbed into the soil. The fine particles become compacted and the water simply runs off into the surrounding lawn. These fine particles also make a great seed germinating mix for weeds. The weed seeds get blown into the mulch, germinate and produce a record-breaking crop of weeds in the blink of an eye.
The right mulch has chunks of wood, does not contain any fines and has been processed properly. Mulch with less than 5% fines is okay for areas that are not extremely humid. Hardwood chips with chunks that are at least 15 mm lasts a long time and does not encourage weed seed germination. Water flows through the mulch into the soil and is retained, reducing the need for supplemental watering. It also allows good air circulation which can help reduce diseases. Pine bark mini nuggets or chips, redwood chips and cypress chips are all good selections.
Hardwood chip mulch will eventually break down and improve the soil but there are better mulch options when soil improvement is the goal. Humus mulches are ideal for improving soil. They do all those things a good mulch does in addition to adding nutrients and improving soil texture and drainage capabilities. It can be mixed into heavy clay soil to improve drainage and then spread around the plants as a mulch.
Proper application plays a big part in how well the mulch works. Mulch should be 2 to 4 inches deep. It should not be pushed up against the trunk of a tree or stems of a shrub. If it is, bark and crown diseases could quickly become a problem. Keep it pulled back 3 to 6 inches away from the stems or trunk. Replenish the mulch every year or two but do not just pile more mulch on top of the old. Turn the old mulch with a shovel or pitch fork to fluff it up and allow air to penetrate it before adding new mulch to bring the total depth up to 2 to 4 inches.