THe difference that I have found between
Latest Version
Workspace Version
Latest version – compares your current code file with the most current code file on TFS server. (This includes all the changes made by your fellow code monkeys and checked back in since you checked out the file). This form of comparison will show differences only if you have multiple checkouts enabled.
Workspace Version – compares your current code file against the code at the time that you had checked out the file. If you have multiple checkouts enabled and some of your fellow code monkeys have checked in changes – then, you use this option to see what you originally changed. You then will have to compare against the latest version to see if there will be any conflicts while you are checking in your code file.