Here's the scenario: my wife's brother really wants to play this game with my wife and I. My wife and I will be playing co-op on our PS3 while he sits across town on his own PS3. If my wife and I teleport back to town, will he just stay where he is? Can he wander off the screen from she and I or will he be forced to stay with us?
In this scenario, her brother would not be forced to go back to town, and could remain the battlefield if he wanted. When a coop game has a group made of local and online members, the local players are tethered to the same screen, but the other members of the party are not.
In the console version of Diablo, will multiplayer same screen play be limited only to local co-op?
In your example, yes, you and your wife would be sharing the same screen when you play local co-op on your PS3, and your wife's brother would see a different screen from his side of town. His character would not be linked to your character's location, and he could freely explore other areas of the map or teleport back to town without impacting you or your wife's characters.