Hi, 

you can find an explanation what they are here:

https://community1.pega.com/community/lead-system-architects/question/pega%C2%B4s-local-data-source

They are basically like entries in an external database but packed with the application. You can use them for a more complicated data that doesn't usually change, and is referenced quite often. For example, you can use it for the list of offices in the company with their locations. Another example would be the list of chemical elements with their properties.  

Please find the below link might help you

https://community1.pega.com/community/pega-product-support/question/how-restrict-condition-property-decision-table-data-page

A local data source is simply a table added to the PegaDATA schema above and beyond the Pega-provided PegaDATA-schema database tables (PC_WORK, PR_INDEX, PC_ASSIGN_WORKLIST, etc,).

The best design for populating a dropdown's option list is to store the data "locally" as opposed retrieving those options from an "external" database every time that the dropdown is used.