Normally when information like the project path is changed, Hudson will delete the workspace (see issue #3784). This not only deletes the workspace mapping, but it also deletes the contents of the local "workspace" folder.
However, when the "use update" flag is checked, the local workspace folder is not deleted. This can result in orphan files being left in the workspace, since TFS does not know about them it will not delete them even if they are no longer in TFS. This can happen if you switch the project path to a different branch where a file was deleted at some point before the branch.