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Azure has several environments - Azure Public, Azure China, Azure Government - each with its own endpoints, subdomains and supported services. Locally is built as its own custom environment, primarily for safety: you should always be confident that a deployment is hitting Locally, not a real Azure environment.
In practice this means Locally runs everything on your machine with custom DNS zones for Data Plane services (like Storage) that are intentionally different from Azure's. There are a few trade-offs:
Yes. Once set up, Locally works entirely offline for up to 32 days. The only requirement is connecting to the internet once every 32 days to renew the installation certificate - this happens automatically, but you can force a renewal before going offline:
$
locally refresh
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