That is setting specific. By default, the skill works for any and all regions - you do not have to pick a specific location. As far as I can tell, Golarion doesn't require you to pick a specific region either. However, in the Forgotten Realms setting, you must pick a specific region (or at least you had to in 3.5).
From here:
Knowledge (local) represents how much you know about local laws, rulers, locations, local traditions, local secrets, and the like. It's also about what you know about monsters of the humanoid type. In addition, it represents your skill at quickly absorbing and learning and knowing this kind of information about regions you visit; that's why there's no need to specialize in Knowledge (local) for specific regions.
When traveling use Knowledge Local as a kind of "street smarts". While not necessarially the direct knowledge of the locality, so much as knowing how things generally work in simular locations, or your ability to pay attention and notice details about a area. Kind of like knowlege nature works in the desert even if the ranger with it has never lived outside of a forest.
Knowledge (Local) is basically Knowledge (Nature) for humanoids. It tells you where they live, what they do, what abilities they might have and so on. Just like Nature does for animals and plants, Arcana does for constructs and dragons or Planes does for outsiders.