Local SEO, or Local Search Engine Optimization, is a relatively new term in the search engine community used to describe the fast growing practice of optimizing small and medium sized businesses for their local geography.
For example:  Atlanta Mortgage   or  Peachtree City CPA
peachtree city cpa local SEO
As you can see, Local SEO is quite simply based on identifying your target keywords and pairing these with laser focused geographical words.  These geographies should represent your target market for your customer base.