This skill represents your overall skill at feeling the pulse of an area: understanding local laws and customs, figuring out who the local VIPs are, and knowing how to go about looking for hidden organizations, etc.
Each skill rank invested represents familiarity with a given city-sized region. Additional ranks can expand your familiarity to a nation as a whole, add other cities, etc. If you are familiar with a particular locale, you may make Knowledge (local) checks at the default DCs. Strange cities, can increase the DC by +2 or +5 each depending upon how distant and culturally distinct the unfamiliar locale is. For instance a city on the far side of your home kingdom might only have a +2 increase to the DC, whereas as surface dweller traveling thru a subterranean civilization with very draconian laws might find the DC increased by +5 for distance and +5 for cultural reasons.