Vertical-align aligns everything else except self

Is this expected behavior, a bug, or something else?

Yes it’s the expected behavior.

Why is it that after applying vertical-align only to the <span>,
everything else got vertically aligned except the <span> content

It’s not exactly like that, vertical-align will specify the alignment of the elements and based on that the browser will render the output. So all your element are getting aligned and not only the text like you think.

Let’s start by removing the alignment

p {
  background: yellow
}

span {
  display: inline-block;
  height: 50px;
  background: pink;
}

<p>
    Hello <span>What in the</span> World?
</p>

The default alignment is baseline, so the baseline of the inline-block will get aligned with the baseline of its parent p.^ref.

And the baseline of inline-block element is defined by the text inside it same thing for the p. To better see this, use a different font-size.

p {
  background: 
    linear-gradient(red,red) 0 22px/100% 1px no-repeat,
    yellow
}

span {
  display: inline-block;
  height: 50px;
  font-size:25px;
  background: 
    linear-gradient(red,red) 0 22px/100% 1px no-repeat,
    pink;
}

<p>
    Hello <span>What in the</span> World?
</p>

You can clearly see that the text inside the inline-block element is at the same line of the text in p.

Now if you add vertical-align:middle you will align the middle of the element with the baseline plus half the x-height of the parent.^ref. The middle of the inline-block is simply the middle and the baseline of the parent is like previously based on the text and we simply add the half the x-height. That’s why the text is somehow in the middle of the inline-block element:

p {
  background:
   linear-gradient(red,red) 0 calc(50% + 0.5ex) /100% 1px no-repeat, /*the baseline*/
   yellow;
  
}

span {
  display: inline-block;
  height: 100px;
  font-size:25px;
  vertical-align:middle;
  background: 
    linear-gradient(red,red) center/100% 1px no-repeat, /*the middle*/
    pink;
}

<p>
    Hello <span>What in the</span> World?
</p>

As you can see the baseline is slightly miss aligned with the middle because the middle of the element is exaclty aligned with the baseline + half the x-height( 0.5ex)

You can play with different values to see the results.

bottom (Aligns the bottom of the element and its descendants with the bottom of the entire line.)

p {
  background:
   yellow;
  
}

span {
  display: inline-block;
  height: 100px;
  font-size:25px;
  vertical-align:bottom;
  background: 
    pink;
}

<p>
    Hello <span>What in the</span> World?
</p>

top (Aligns the top of the element and its descendants with the top of the entire line.)

p {
  background:
   yellow;
  
}

span {
  display: inline-block;
  height: 100px;
  font-size:25px;
  vertical-align:top;
  background: 
    pink;
}

<p>
    Hello <span>What in the</span> World?
</p>