We\'re not allowed to define a functor struct inside a function because one is not allowed to use function declared structs in the instantiation of function templates.
The scope of the local classes is the function in which they're defined.But that isn't interesting in itself1.
What makes local classes interesting is that if they implement some interface, then you can create instances of it (using new) and return them, thereby making the implementation accessible through the base class pointer even outside the function.
Some other facts about local classes:
They cannot define static member variables.
They cannot access nonstatic "automatic" local variables of the enclosing function. But they can access the static variables.
They can be used in template functions. They cannot be used as template argument, however.
If they defined inside template function, then they can use the template parameters of the enclosing function.
Local classes are final, that means users outside the function cannot derive from local class to function. Without local classes, you'd have to add an unnamed namespace in separate translation unit.
Local classes are used to create trampoline functions usually known as thunks.
Some references from the Standard (2003)
\1. A class can be defined within a function definition; such a class is called a local class. The name of a local class is local to its enclosing scope. The local class is in the scope of the enclosing scope, and has the same access to names outside the function as does the enclosing function. Declarations in a local class can use only type names, static variables, extern variables and functions, and enumerators from the enclosing scope.
[Example:
int x;
void f()
{
static int s ;
int x;
extern int g();
struct local {
int g() { return x; } // error: x is auto
int h() { return s; } // OK
int k() { return ::x; } // OK
int l() { return g(); } // OK
};
// ...
}
local* p = 0; // error: local not in scope
—end example]
\2. An enclosing function has no special access to members of the local class; it obeys the usual access rules (clause 11). Member functions of a local class shall be defined within their class definition, if they are defined at all.
\3. If class X is a local class a nested class Y may be declared in class X and later defined in the definition of class X or be later defined in the same scope as the definition of class X. A class nested within a local class is a local class.
\4. A local class shall not have static data members.