The wood spine is like a protective layer. Like a shoe over a sock, that is to say that the bag is fully leather all the way around with a recessed groove all around it to allow the wood to fit over it.
The wood spine is attached with brass hardware to the leather and an additional strip inside the bag itself. It is also sealed with a special Polyglue to make it one piece (borrowed from shoemaking). This process makes the bag much sturdier that any regular leather design while retaining the advantage of the sealed leather body.