Riverboat,
I use this practice where I work simply to avoid an uncommanded climb. You shouldn't have to do math from it though. If we report traffic that's 1,000 feet above you, then that's all you really have to know. You don't even have to know your own altitude even; you know the traffic is a thousand feet above you.
I use it too when someone is climbing to 7,000 and another is level at 8,000. I'll say to the one that's level: "Traffic will stop a thousand feet below", especially, in an approach environment, if the pilot might be expecting descent soon.
It would be unwise to use it when the traffic is inconflict and at an incertain altitude or if it is unclear whether it is climbing, or level. So if I see traffic ahead of you at 2,700 and you're level at 2,500, I'll say the altitude since that traffic might be on the way up or down or level and either way still a conflict since he's within IFR and VFR sep minima.
I always found that "He's at the same altitude as you headed straight for you" works better than giving the altitude, position and direction and letting you figure it out a second later.
This being said, you won't hear me give out traffic info unless you cross the pond...
Cheers,
SAO