I am actually in the process right now partitioning off an area of my living quarters for woodworking and airbrushing. I live in an apartment and there's no other choice.
I have a 5x6 foot area walled off, floor to ceiling. I'm obviously limited to small projects and use only hand tools, except for a drill.
Sawdust, shavings, paint spray and vapors were the reason for walling off this area. I have a small doorway with a threshold that prevents dust and shavings from blowing out along the floor. I use rubber mats which not only protects the hardwood floor, but also keeps dust from moving around too much.
There is a window that opens to the outside, which I feed the exit hose from a small airbrushing spary booth through. I am planning to put a fan in this window to run at low speed out the window, creating negative pressure, drawing air in from the rest of my apartment - hopefully :-)
I'm considering putting a small air filter in this area as well.
When I need to make cuts on larger pieces of lumber, weather permitting I bring it outside to the parking lot.
Some day I'll have a real shop :-)