A Workspace is – in essence – just a set of nested folders, mapped to areas in TFS, containing local copies of files of files and folders in TFS.
When you edit files, you're making changes to the local files, that need to be at some point checked in – ie, pushed back the TFS Server.
A primary benefit for workspaces is isolation. It provides a sandbox to make changes without worrying about affecting other users - at least till the changes are checked in.
Workspaces can be created as:
Private (the Default),
Public (Limited)
Public (multiple people can change and check in code.