Yes. In the example you specified, it will take from the "layout" first.
When you determine where to extract resources from it, first check the size layout folder that matches the device (that is, a small device will check the layout-small first), if the specific resource in question is not available, then it will check a simple "layout" . If and only if the resource is still unavailable, it will begin to check the "size layout" folders that do not match the device on which it is currently running.
EDIT: Just tested on a small device. My findings confirm how I thought this would work. It will definitely take from a simple layout instead of a layout - normal on a small device if the resource exists in both.