The Wireless Proto shield has an on-board switch labelled Serial Selection. It determines how the Xbee's serial communication connects to the serial communication between the microcontroller (ATmega8 or ATmega168) and USB-to-serial chip on the Arduino board.
When in the Micro position, the DOUT pin of the wireless module is connected to the RX pin of the microcontroller; and DIN is connected to TX. The wireless module will then communicate with the microcontroller. Note that the RX and TX pins of the microcontroller are still connected to the TX and RX pins (respectively) of the USB-to-serial converter. Data sent from the microcontroller will be transmitted to the computer via USB as well as being sent wirelessly by the wireless module. The microcontroller will not be programmable via USB in this mode.
With the switch in the USB position, the DOUT pin the wireless module is connected to the RX pin of the USB-to-serial converter, and DIN on the wireless module is connected to the TX pin of the USB-to-serial converter. This means that the module can communicate directly with the computer. The microcontroller on the board will be bypassed. To use the shield in this mode, you must program the microcontroller with an empty sketch , or remove it from the board.