Yes, exactly, they are temporary, for storing something temporarily inside an event or function or event group etc. Another important thing about local variables is that they are visible and accessible only from inside of this event/function/group.
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You create them the same way as global variables - just press V.
You can also make them not temporary by ticking "Static" checkbox. Static variables retain their value forever (until you change it or exit your game of course).
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Static variables may be quite useful. For example, you can create an event group "AUDIO" for all your audio events. Add a static local variable "audioVolume" in this group. Then even if you restart the game and reset all global variables, audioVolume will not be reset.