Certain domain names are locally routed only. So if you use internal or local as a tld, you can just assign whatever names you want and your computer won’t go looking out on the internet for them. This means you and I can both have fileserver.local as an address on our respective network without conflicting. It’s the URI equivalent of 192.168.0.0/16.
Interesting that you should use “.local” as an example, as that one’s extra special, aka Multicast DNS