local (the keyword) has NOTHING to do with local variables. In Perl, you use my (the keyword) to declare local (i.e., lexically scoped, or 'lexical') variables.

The keyword local localizes a variable, whether it's named or anonymous or global (i.e., package variables, which are in the symbol table). To localize a variable is to stash away its value in such a way that exiting the enclosing scope will result in its being restored. For example:

use vars qw( $x );      # a package global

$x = 'outer';

# this block:
{
  my $save_x = $x;      # localize $x by saving its  value
  $x = 'inner';         # change $x to hearts content

  some_sub( $x );       # some_sub() sees $x with value 'inner'

  $x = $save_x;         # restore original value just before exiting b
+lock
}

# is functionally identical to this block:
{
  local $x = 'inner';

  some_sub( $x );
}

# in both cases, some_sub() is called with the package global $x set
# to 'inner' and in both cases, the value of $x is restored when the
# block exits, except in the 'local' case, it is not necessary to
# explicitly restore $x
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One example of its use is with the Perl global, $/. Often, (in a subroutine, for example) it is necessary to set $/ = undef;, but to do so may break code which assumes its default value.

# need to 'slurp' in an entire file
{
  local $/ = undef;

  # (read the file, etc.)
}
# $/ is now restored to whatever it was before
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Hopefully, this explains WHEN to use local.

Update: Whoops! I stand corrected (thanks, shotgunefx)! Starting with Perl 5.5, it became possible to localize arbitrary anonymous variables (e.g., local $obj->get_handle()->{some_property}->get_param("param1");). I never actually had a use for (and therefore never tried) localize a lexical; I suppose I just assumed that they could.

Apologies to all for suggesting that localizing a lexical was possible.

dmm