Do the following to create a local variable:

1. Click on the dropdown button in the variables field.
2. Choose the +New Variable option to create a local variable.
3. Type a name for the variable in the field (1).
4. Select type as Text or List or Table in the dropdown (2) as per the requirement.
5. If type selected is Table, then select the Table Definition also as per the requirement.

6. Click on the ADD button (3).

7. The variable gets created and listed as a Local Variable in the variable text box and also listed under the Local Variables option under Variables tab

   

Read this example to know how Local variables are used in a task.