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I've been using local reserves for years now with a lot of success.  The first thing is that they are local reserves that are right behind the lines.  This way they respond to where you anticipate an attack.  That limits the locations thay may be drawn to, usually.  The use of tactical reserves is farther behind the lines.  They respond to a general area that has been attacked.  Well, at least for me that is what they have done.  Artillery are often put in tactical reserve and hopefully far enough back so they won't jump into the front lines.  This has really been successful in helping out various units with defensive support fire.  Especially if there is a second round. 
 
I also like to put ships in local reserve and tactical reserve.  It depends on the circumstances they are being used.  Larger ships in tactical help with the support fire, the smaller ones in local reserve, like destroyers to cover behind the lead ships.  This way if a hex is lost the destroyer rushes up and the larger ships help with defensive support fire.  Ships in tactical support also seem better at interdicting land movement.  In local reserve as well as tactical they seem to support land combat equally.  If left in movement mode they also do react to interdict land movement and support fire but in my experiences not as efficently. 
 
My use of local reserves with land units have various methods for their use.  Usually it is an infantry unit behind the lines.  It tends to join in the defense, or it may try to advance into a retreated hex.  Sometimes, when desperate, even HQ are used in this way if they are fairly good on defense.  If they have better support fire then tactical is the better mode by far.  Mobile units sometimes also are used in this manner right behind the front.  It has been useful to have tanks or assault guns rush in to help the defenders.  But they often are better in the tactical mode.  Other kinds of support, such as AT or AA are also used in this manner.  Especially if it is not motorized.  If possible it has been wise to put units in both tactical and local reserves right behind the lines as they often react differently.  Maybe my experiences are not typical.  But for me local reserves have done just what I needed them to do.  Having them too far behind the lines changes how they will react.  They can be zig zagging all over the place and end up doing nothing if too far behind the lines.  That is where tactical reserves should be. 

ORIGINAL: Custer7

I've been using local reserves for years now with a lot of success.  The first thing is that they are local reserves that are right behind the lines.  This way they respond to where you anticipate an attack.  That limits the locations thay may be drawn to, usually.  The use of tactical reserves is farther behind the lines.  They respond to a general area that has been attacked.

That doesn't make any sense. Units on tactical reserve will only move if an adjacent hex is attacked.

I also like to put ships in local reserve and tactical reserve.

Stranger and stranger. Ships cannot be set to tactical or local reserve in TOAW. What game are you playing?

Actually, I think there is at least one other sort of context in which LR has its use (although limited): you've got a ton of useless cheapo units that have high movement points. Say for example, a bunch of recon helicopters,  MP units, or Attack 1, defense 2 mech infantry units, or whatever, that you have broken down into thirds. Creating a veritable army of weak but fast reserves behind the lines. Create a second layer of all these dudes behind your front line and put them in LR. Your opponent pulls up to attack and checks out the prospects for attacking at various points along the line using the Plan Attack window (none of these ratios will reflect the altered ratios when the LR mobs jump in). He attacks in various places and the LR units just keep flying out of the wood work to fill in and eat up his combat rounds. Next turn, he may be wondering what else you have up your sleeve.

Myself, I've had good use of LR units in WW1 games, generally on the west front, were there are at least 3 lines of defense, or somewhere were troop density is high.

Units recovering in the 3rd line next to an HQ in a sector were an opponent's offence 'MAY' occur set to LR will march strait to the guns, lol! Stacking limits seem to obtain as a useful limit to this, as 'trench warfare' normally max's your unit per hex limit.

This seems to yield an immediate support to the 2nd defense line, and notifies me that an attack is incoming simply due to the 'button color' changing along a given front.

I'll have to try this some more, as it's something I've been doing 'instinctivly', but it seems right, neh?

ORIGINAL: golden delicious

ORIGINAL: Custer7

I also like to put ships in local reserve and tactical reserve.

Stranger and stranger. Ships cannot be set to tactical or local reserve in TOAW. What game are you playing?

Actually you can. I'm not sure if it makes any difference to their behaviour, but if you click on the ship 3D view in the top-right corner instead of right clicking on the unit, you can set it in Local or Tactical reserve.

ORIGINAL: Anthropoid

Actually, I think there is at least one other sort of context in which LR has its use (although limited): you've got a ton of useless cheapo units that have high movement points. Say for example, a bunch of recon helicopters,  MP units, or Attack 1, defense 2 mech infantry units, or whatever, that you have broken down into thirds. Creating a veritable army of weak but fast reserves behind the lines. Create a second layer of all these dudes behind your front line and put them in LR. Your opponent pulls up to attack and checks out the prospects for attacking at various points along the line using the Plan Attack window (none of these ratios will reflect the altered ratios when the LR mobs jump in). He attacks in various places and the LR units just keep flying out of the wood work to fill in and eat up his combat rounds. Next turn, he may be wondering what else you have up your sleeve.

That's interesting- it would probably work, too. Of course, ant units create a lot of other problems besides.

ORIGINAL: JapLance
Actually you can. I'm not sure if it makes any difference to their behaviour, but if you click on the ship 3D view in the top-right corner instead of right clicking on the unit, you can set it in Local or Tactical reserve.

I recently encountered this myself so I stand corrected. I was just relieved to discover that selecting "Dig in" does nothing. I'm fairly confident that the reserve settings won't have any effect.