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In Minecraft, to avoid villagers getting confused with breeding mechanics, etc., any group of villagers (i.e. Iron Farm, Villager Spawner etc.) need to be placed >64 blocks away.

Does this apply vertically, or is it to do with Chunk mechanics?

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The distance of 64 is required between doors of different villages, not the villager entities. The distance is spherical, so it applies vertically as well - see the old DocM77 iron farm tutorial for example:

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