Here is the rule copied directly from the CRA website:

How is your TFSA contribution room determined

The $5,000 TFSA dollar limit is indexed based on the inflation rate. The indexed amount will be rounded to the nearest $500. For example, assuming that the inflation rate is 2% for 2010 and 2011, the TFSA dollar limit would be $5,000 for 2010 and 2011.

The TFSA contribution room is made up of:

• your TFSA dollar limit ($5,000 per year plus indexation, if applicable);
• any unused TFSA contribution room from the previous year; and
• any withdrawals made from the TFSA in the previous year, excluding qualifying transfers or specified distributions.

For an example, see Example 2 - TFSA contribution room.

Note
You can have more than one TFSA at any given time, as long as the total amount contributed to all your TFSAs during a year is not more than your available TFSA contribution room for that year. As the account holder, you are the only person who can contribute to your TFSA.