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The Local domain is meant as the location for installing software which was not included with your GNUstep distribution and which you or your local sysadmin compile and/or install manually. These may include third party applications, custom extension libraries and their related header files, etc. Every software (except for gnustep-make, gnustep-base, gnustep-gui and gnustep-back which for historical reasons by default install into the System domain) should install by default into the Local domain, so that if you download a source tarball of the software and you install it, it installs by default in the right place for this operation (the Local domain). Distributions should override this default manually when they package the software they want to distribute as part of their distribution, so that in that case the software is installed in the System domain.
In the GNUstep filesystem layout the entire Local domain is installed as the Local folder of your GNUstep installation.