This may sound like a stupid question but it has been bugging me. Lets say I have 2 devices A and B, both connected wirelessly to the same WAP. If A were to talk to B, does the wireless traffic from A go directly to B using the MAC address it has gotten from ARP or does the traffic still have to go through the switch before forwarding it from the switch to device B? In other words, if device A and B were side by side physically, will B be able to 'intercept' the radio waves sent out by A and therefore, read the packet contents?
Generally all the devices at the AP communicate through AP. There are technologies as Wi-Di and Wi-Fi Direct, but those are beyond the scope of this question. So devices can't communicate directly in common Wi-Fi network. Regarding traffic interception, you should take into consideration ciphering here. Though there are ways to intercept traffic and read it contents, with WPA2 those attacks are very complicated.