I assume the LOCAL and REMOTE files are just what their name suggests, but what are BASE and BACKUP for?
In case of pulling (merging) in changes from a online repository into your local copy, you can understand REMOTE, LOCAL and BASE as:
REMOTE = Your local file including own modifications ('as on the filesystem')LOCAL = The remote file inside the online repository ('changes made by other users')BASE = The origin of both files ('without any modifications')The terms are from the point of view of the online repository which is what 'local' refers to. See also the wikipedia article about three-way merge.