time.sleep -- sleeps thread or process?

It blocks the thread. If you look in Modules/timemodule.c in the Python source, you'll see that in the call to floatsleep(), the substantive part of the sleep operation is wrapped in a Py_BEGIN_ALLOW_THREADS and Py_END_ALLOW_THREADS block, allowing other threads to continue to execute while the current one sleeps. You can also test this with a simple python program:

import time
from threading import Thread

class worker(Thread):
    def run(self):
        for x in xrange(0,11):
            print x
            time.sleep(1)

class waiter(Thread):
    def run(self):
        for x in xrange(100,103):
            print x
            time.sleep(5)

def run():
    worker().start()
    waiter().start()

Which will print:

>>> thread_test.run()
0
100
>>> 1
2
3
4
5
101
6
7
8
9
10
102

It will just sleep the thread except in the case where your application has only a single thread, in which case it will sleep the thread and effectively the process as well.

The python documentation on sleep() doesn't specify this however, so I can certainly understand the confusion!