HI Sateesh,
We need local variables to hold some value temporally with in the action/screen/block... Because while writing logic sometime condition raise to store the value for some time so that we can use value later so we store it in local variable.
As you asked it may be type of entity identifier. Lets say you have some action in that you need to perform few actions for a particular user. So in this case it will be useful if I store UserId in a local variable so can use it anywhere in the scope of that action.
The use of local variable is same in OutSystems as it works in other programming languages. For better understanding you can go through the links mentioned above by other community members.
Regards