What will happen if Developer A checks out a shelved file, make some changes and check it back in.
Meanwhile, Developer 'B' is looking at the shelved set and he decides to work on the same file which is now updated & checked-in by Developer 'A'.
Will TFS pull up the Merge change screen or will it allow Developer B to access the originally shelved file?
It depends on the workspace version of developer B. If developer B is on the version from which the shelf-set was created, he'll be able to work in the file with no interruptions.
If he's on a newer version and when there have been changes to the file since the shelf-set was created, he'll be asked to merge.
If he's on the version after A checks in the changes to the shelved file, he'll likely be prompted to merge the changes, or when the changes are in tune with the workspace, will just be able to unshelve the changes without being pompted.
In general it's better when two developers don't work on the same shelveset, in such case it's better to create a temporary branch (topic branch/feature branch).