I think you are using a concept of space-time that is quite limited. You are at most using concepts from Einstein's Special Relativity. Everything changed with General Relativity.

Space is not "created", space-time is warped. Gravity is the deformation of space-time by mass/energy. The distance from point A to point B is measured by the time it takes for a light ray to get from A to B using the shortest path. But if you move objects with mass (or with energy) near A and B, the shortest path will change. Also, it's easy to measure distance in seconds when you know the speed of light.