The situation is as follows:
- both of you check out the same file.
- both of you do some changes to the file
- one of you commits the changes first.
- the other one trying to commit will get an error saying the file needs an update, because it has changed in the repository since the last checkout
- when updating the file, svn client tries to merge the differences from the repository with the local ones
The results depends on the changes. If the changes are in different sections of the code, the merge is done automatically.
If changes overlap Subversion tells you the file is conflicted und you have to decide, whether:
- you merge manually
- you overwrite the latest changes from the repository with your changes
- revert your changes and work with the version from the repository
After you resolved the conflict, you have to commit the file again, to make your changes permanent.