This is a simple TFS (Team Foundation Server) problem. Actually it is not even a problem.
If you have encountered this message you might have done something like below:
-Copy a file into a folder in TFS Source Control Explorer
-Before adding it to the source control, delete this item in TFS Source Control Explorer
-Modify the file and try to copy the file into the same folder in Source Control Explorer
Solution lies in the message itself: “…a file already exists at its destination local path”!
When you dropped the file to the target folder in TFS, file was copied to the local (mirror) folder on your computer. All you need to do is browse to the mirror folder in your computer, delete the copied file there, and try again.
The message should be gone now.