Arc-Fault Circuit Interrupter (AFCI) receptacles are similar to Ground-Fault Circuit Interrupter (GFCI) receptacles, in that they both operate on the Line / Load idea. When connecting an AFCI receptacle, downstream devices are only protected if they are connected to the Load side of the device. If devices are connected in parallel using pigtails on the Line side, they will not be protected by the AFCI device.
Since connection-wise, AFCI and GFCI receptacles are similar. The answers to these questions can be useful in this situation as well.
Basically, these devices only monitor the wires on the Load side of the device. Which means, anything upstream on the Line side doesn't really matter. Sharing a neutral should not be a problem, as long as it's done properly (e.g. don't share a Load side neutral, only share the Line side neutral before the device).
Arc-Fault Circuit Interrupter (AFCI)
An arc-fault circuit interruption device is designed to detect dangerous arcing within the protected circuit, and open (turn off) the circuit to prevent damage caused by the arcing. It does this using special circuitry to analyse the electrical characteristics of the circuit, looking for characteristics that match specific pre-programmed values. If the AFCI detects suspicious goings on, it opens the circuit.
AFCI breakers are typically combination devices, meaning they also provide similar overcurrent and short-circuit protection to a standard breaker.
Installing a combination AFCI breaker on a circuit containing knob and tube wiring would be a great idea, and could potentially prevent a fire.
Ground-Fault Circuit Interrupter (GFCI)
Ground-fault circuit interruption devices are designed to detect ground-faults, and open (turn off) the circuit when a ground-fault is detected. They work by using a current transformer (CT) to detect current imbalances between the ungrounded (hot), and grounded (neutral) conductors of a circuit. This blog entry might help you understand how GFCI devices work.
GFCI breakers are typically combination devices, meaning they also provide similar overcurrent and short-circuit protection to a standard breaker.
Installing a GFCI breaker on a circuit containing knob and tube wiring, probably won't provide any benefit. GFCI devices are designed to prevent electrocution, not to protect the wiring.
Combination AFCI GFCI Circuit Breakers
Circuit breakers that provide AFCI, GFCI, overload, and overcurrent protection are becoming more widely available. If you can find them for your panel (and afford therm), these would be the best option.
Best Answer
One or the other, not both. Depending on adopted code, you may ALSO need AFCI protection, which is better done at the breaker.
GFCI is pretty much the same for practical purposes whether at the breaker or at the first device, except for special circumstances like a buried cable.
You do NOT need multiple GFCIs on one circuit - just make a GFCI the FIRST device and then wire the rest of the devices from its LOAD terminals which will protect the rest of the devices on the circuit. Carefully follow instructions for wiring line and load on the GFCI and place GFCI protected labels on the remaining outlets/devices.