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Im not sure I understand the question. What do you mean "how does it work"? Beside the fairly obvious "you have two phones that can operate as keys for your car", what specific question do you have?
Depends on what you mean by confuse the car. They both work. You can link them to different profiles in the car. Does the car always connect to the correct one? No. Can both get in the car? Yes.
It will be random which phone it detects as the key running (technically would be the one it first detects to be closer based on signal strength, but there are so many variables to this that it can be treated as essentially random).
It will still allow access to functions of the car, but it may set the wrong profile for your driver seat settings (if you tied a specific profile to your phone key). If you want a specific key to be active, you can turn off bluetooth for one of the phones.
Unfortunately there is no way to set a preferred phone key.
You can set a priority bluetooth device for a given driver profile, but that only determines which device to use for audio (nothing to do with key). Model 3 Owner's Manual | Tesla