TFS Workspaces
Both kind of workspaces are supported by CodeFluent Entities. The following post explains the differences between local workspace and server workspace:
http://blogs.msdn.com/b/phkelley/archive/2013/05/29/server-workspaces-vs-local-workspaces.aspx
Note that Microsoft recommends the use of local workspace:

Working with server workspace
CodeFluent Entities generates files in a way that’s integrated with Visual Studio (by default), whether source control is enabled or not. If new files are generated or if files are deleted, it instructs Visual Studio to add or remove them to the target project, so it will add pending changes in source control, if source control is enabled.
If a generated file already exists, nothing is changed to the Visual Studio project, so you won’t get any pending changes (but your files are up to date for compiling). You will then have to manually checkout and checkin files to the source control. The main reason of this behavior is to allow code generation when exclusive checkout policy is in place. For example if a developer generates files and checkout them automatically, no one can generates files until the first developer check them in. If you allow multiple checkouts, the CodeFluent Entities behavior prevents from unexpected merging conflicts.
Note: With server workspaces and Visual Studio 2012 or above, when a generated file is removed (for instance when you remove an entity), the file is removed from the project but still remain on the source control. You have to manually delete it using the source control explorer. This seems to be a limitation of the Visual Studio Development Environment, and the underlying target projects systems.
Working with local workspace
With local workspace Visual Studio automatically detects file changes on the file system. So each time you generate files, Visual Studio detects file changes and check the corresponding files out. If files are identical, Visual Studio does not check files out.
After adding and removing entities you may have the following type of pending changes:
