What does shiftwidth do in VIM editor

Lets say you have set shiftwidth=2

Firstly, you need to make sure that the file that a .c extension. Either by using

$ vim foo.c

for a new file or saving the file with a .c extension.

Now type

if (a > 0) {

and press enter. The next line will automatically be indented.

if (a > 0) {
  foo();

when you put a matching '}', vim will indent it properly.

if (a > 0) {
  foo();
}

Read this documentation for more clarity.

I can recommend this screencast by Drew Neil which will explain how tabstop, softtabstop, shiftwidth and expandtab work together.