The Terminal Server can host different screen configurations for each user. The screen resolution to be used is defined in the Remote Desktop Connection (mstsc) tool when the session is created, on the 'Display' tab. You can set there for a session to fill the screen or fit to a specified resolution.
For users with multiple monitors, do a Start > Run > mstsc /span and then create the session. This will enable the session, in 'Full Screen' Display mode, to span their multiple monitors.
-Matt