He,
I found this option when I pressed the 3 balls behind a users name. I have looked in the admin manuale but could not find any explanation.
(Photo from admin manueale)
I would say, if someone has left a company and used his personal device (smartphone/PC) as a client or a personal device has been lost/stolen, you can make sure that data access to the Nextcloud server is disabled and all locally stored files on a client are deleted.
What is mend with locale stored files? Local cashed files or local saved files?
If you access files on Nextcloud with a Nextcloud client app, files might be cached and stored locally. Only if you access Nextcloud via a browser, it cannot be controlled by this setting anymore.