What is a local function?

What is a local function?

procedure TMainForm.TreeDragDrop(Sender: TBaseVirtualTree; Source: TObject; DataObject: IDataObject;
  Formats: TFormatArray; Shift: TShiftState; Pt: TPoint; var Effect: Integer; Mode: TDropMode);

  //--------------- local function --------------------------------------------

  procedure DetermineEffect;

  // Determine the drop effect to use if the source is a Virtual Treeview.

  begin
    // In the case the source is a Virtual Treeview we know 'move' is the default if dragging within
    // the same tree and copy if dragging to another tree. Set Effect accordingly.
    if Shift = [] then
    begin
      // No modifier key, so use standard action.
      if Source = Sender then
        Effect := DROPEFFECT_MOVE
      else
        Effect := DROPEFFECT_COPY;    
    end
    else
    begin
      // A modifier key is pressed, hence use this to determine action.
      if (Shift = [ssAlt]) or (Shift = [ssCtrl, ssAlt]) then
        Effect := DROPEFFECT_LINK
      else
        if Shift = [ssCtrl] then
          Effect := DROPEFFECT_COPY
        else
          Effect := DROPEFFECT_MOVE;
    end;
  end;

  //--------------- end local function ----------------------------------------

To me it looks like a function inside a function.

Weird is this possible? What are the guidelines on this one?