To feel envy is to feel diminished by another's success or well-being. Schadenfreude is in a certain sense the opposite: it is to take pleasure or satisfaction in another's misfortune. An interesting case of Schadenfreude is pleasure in having incited envy in another.
Envy is a vice of propinquity. Envy erupts only among people who compare themselves with one another, and for comparison there must be propinquity or social proximity whether it be that of friends, relatives, neighbors, co-workers. Suppose A and B work in the same office, and A gets a promotion. That is a situation in which envy may arise. Suppose it does: B comes to feel diminished by A's success. Even though the change in B is 'merely Cambridge,' as the philosophers say, merely relational, and thus no real change at all, the real change occurring in A, B nonetheless and quite perversely feels bad that A has done well even though B's feeling bad does nothing to improve his lot, and indeed harms him by befouling his mind and predisposing him to acts worse than envy.
A, noting B's envy, takes umbrage at being the object of B's hateful attitude. Realizing that B has befouled himself — has shat his own mental pants as it were — A takes pleasure in this fact. A's pleasure, I want to say, is schadenfreudlich. A takes satisfaction in the harm B has inflicted upon himself by succumbing to envy.
If A were a better man he would feel pity for B's self-harm. If he were better still, he would not even feel pity. See Spinoza on Commiseratio.