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Varicella zoster is the virus that causes chickenpox. The VZ virus is a member of a big family of related viruses in the Herpes clan, so shingles is a relative of the common cold sore (Herpes labialis). After a person has a natural case of chickenpox, the virus lives on in the body in the nervous system, specifically in the nerve roots branching off the spinal cord and coursing out between the spinal discs to the body. Certain stimuli (stress, fever, bad luck - whatever) in certain unfortunate individuals can trigger the virus to multiply and flow down the nerve fibers to the skin. There, itchy, sometimes painful lesions quite reminiscent of chickenpox sores will develop. If these are tested, they are full of chickenpox virus (varicella zoster). The resultant painful disease is called shingles. If shingles reoccurs (and sometimes it does, especially in older folks) it always affects exactly the same area of the body.
The open sores do shed chickenpox virus, and theoretically are contagious. I haven't seen that happen often (if ever) in 20 years, probably because the lesions are most often on the trunk and covered by clothing. That seems to keep them from spreading the chickenpox virus.
We don't know for sure what the long term outlook for shingles is after the chickenpox vaccine. The vaccine just hasn't been around long enough to be sure what's going to happen, but 15 year surveillance of early vaccine recipients seems to indicate that the incidence of shingles in children who get the vaccine is lower than in those who get natural chickenpox infection.
Early infection with chickenpox is associated with an increased risk of shingles in childhood, especially for children who have chickenpox under age 6 months. Children born to mothers who had chickenpox during pregnancy may even have zoster at birth. Infants who contract chickenpox in the first year of life may develop shingles within three or four years; the interval between chickenpox and the eruption of shingles is about six years for children who had the primary infection later than the first year.