Localised audience can be use for brick & mortar marketing which has shop or retail that operate locally in certain area.
Some use cases for example you want to promote car workshop in Gombak. So you want to reach out the audience in Gombak and nearby location to promote your workshop.
In order to do this, the setting are quite simple.
In Ad Set setting, use the setup as below:

On the location section, please select People living in this location rather than other option.
If you choose the first option, anyone who passing by Gombak will receive your ads. That may result in audience who stay in Shah Alam but went through Gombak last week will receive the ads.