> I can alt-click a window to move it in Xfree even if the application is blocking and I happen to click on a portion of the window that the application itself is responsible for drawing. Right?
Right: that's server-side decoration.
> All Wayland has to do is be aware of the what is the 'title bar' region of the window and be able to act accordingly when you click on that portion.
What you're suggesting is 'server side' window management, so you will have "ugly" window if the client doesn't answer fast enough, but the window will be resized/moved smoothly.
There is a tradeoff to be made:
a- client side decoration: the windows will be always displayed consistently even when resizing, but the animation may become jerky/unresponsive when resizing or moving if applications are slow to answer.
b- server side decoration/management: moving or resizing windows will be animated smoothly but the content of a window when resizing can be "ugly" (incoherent) if the application doesn't answer fast enough.
Wayland developers prefer (a), KDE developers (and I) prefer (b): they'll use their own compositor which will do server-side decoration instead of Weston.