We can see the difference by looking at JLS§14.14.2's description of how the enhanced for works when handling an array:
The enhanced for statement is equivalent to a basic for statement of the form:
T[] #a = Expression;
L1: L2: ... Lm:
for (int #i = 0; #i < #a.length; #i++) {
{VariableModifier} TargetType Identifier = #a[#i];
Statement
}
Note how the variable is declared within the body of the loop, not the header of the loop. That is, your foo function is like this:
void foo() {
{ // Freestanding block for scope, though not really needed as `foo` has
// nothing else in it
char[] a = foo; // T[] #a = Expression;
for (int i = 0; i < a.length; i++) {
char foo = a[i]; // {VariableModifier} TargetType Identifier = #a[#i];
}
}
}
That's why you get away with the shadowing in the enhanced for, and not in the traditional for, which needs to access the original array (to get its length, to get the entry for i, etc.).
More about the enhanced for loop in How does the Java 'for each' loop work? and its answers.