What is the difference between “Compare with Workspace version” and “Compare with Latest version”?

Question

I am using Visual Studio 2012 with TFS. Whenever I want to compare my checked out files, I have two options to choose from:

1. Compare with workspace version

Answer 1

@serhio's 3/28/14 answer is an excellent narrative answer. However, I'm sure many (including myself) needs that backed-up with an example, and here it is:

1. For everyone, "Lastest Version" = Changeset # 1.
2. You "Get Latest".
3. For you, "Workspace Version" = Changeset # 1.
4. You make changes.
5. Developer B "Get Latest".
6. For Developer B, "Workspace Version" also = Changeset # 1.
7. Developer B makes changes.
8. Developer B "Check-in".
9. For everyone, "Lastest Version" = Changeset # 2.
10. For Developer B, "Workspace Version" = Changeset # 2.
11. For you, "Workspace Version" still = Changeset # 1.
12. You "Get Latest", "Merge Conflicts" (if necessary) and "Check-in".
13. For everyone, "Lastest Version" = Changeset # 3.
14. For you, "Workspace Version" = Changeset # 3.
15. For Developer B, "Workspace Version" still = Changeset # 2.