In more detail
Local SEO matters to any business that serves customers in particular places, whether they visit a shop or office, or the business travels to them. It has two main parts.
The map results. Your Google Business Profile determines how you appear in the local pack and Google Maps. Google says local ranking is based mainly on relevance, distance and prominence (source). Accurate categories, services, hours, photos and a steady flow of genuine reviews all help with what you can control.
The regular results. Your website still needs to rank for local searches. That means clear pages for each service, location pages where you genuinely serve an area (not hundreds of near-identical "suburb" pages, which can fall under Google's doorway spam policy), consistent name, address and phone details, and local content that shows real experience in the area. Google's documentation on establishing business details explains how it gathers business information for Search and Maps.
Other signals include mentions and links from local organisations, news sites and relevant directories, and reviews on other platforms.
Why it matters when hiring an agency
Google notes that small local businesses can probably do much of their SEO themselves (source), so be clear what an agency would add. Local specialists can be worth it in competitive cities and sectors, for multi-location businesses, or when you lack the time.
Ask how they'll track visibility across your service area, how they handle reviews within Google's rules, and how they create location pages without producing doorway pages. Experience in your city and country is one of the questions Google suggests asking. You can browse SEO agencies by country and filter for local SEO specialists.