Local Modifications
The local modifications in a working directory are the differences existing between the files in the working directory compared to their parent file revisions in the repository and all added, moved, removed or renamed files.
Those differences can be displayed by diff.
Committing these local modifications produces a new changeset in the repository. Mercurial uses the dirstate to quickly determine what files in the working directory have changed and thus need to be included in the commit.
If the working directory has two parent revisions (due to a merge), the local modifications will correspond to the resolution of the conflicts.