A class declared inside a function becomes local to that function and is called Local Class in C++. For example, in the following program, Test is a local class in fun().

#include<iostream>
using namespace std;

void fun()
{
class Test // local to fun
{
/* members of Test class */
};
}

int main()
{
return 0;
}

Following are some interesting facts about local classes.
1) A local class type name can only be used in the enclosing function. For example, in the following program, declarations of t and tp are valid in fun(), but invalid in main().

#include<iostream>
using namespace std;

void fun()
{
// Local class
class Test
{
/* ... */
};

Test t; // Fine
Test *tp; // Fine
}

int main()
{
Test t; // Error
Test *tp; // Error
return 0;
}

2) All the methods of Local classes must be defined inside the class only. For example, program 1 works fine and program 2 fails in compilation.

// PROGRAM 1
#include<iostream>
using namespace std;

void fun()
{
class Test // local to fun
{
public:

// Fine as the method is defined inside the local class
void method() {
cout << "Local Class method() called";
}
};

Test t;
t.method();
}

int main()
{
fun();
return 0;
}
Output:

Local Class method() called

// PROGRAM 2
#include<iostream>
using namespace std;

void fun()
{
class Test // local to fun
{
public:
void method();
};

// Error as the method is defined outside the local class
void Test::method()
{
cout << "Local Class method()";
}
}

int main()
{
return 0;
}
Output:

Compiler Error:
In function 'void fun()':
error: a function-definition is not allowed here before '{' token

3) A Local class cannot contain static data members. It may contain static functions though. For example, program 1 fails in compilation, but program 2 works fine.

// PROGRAM 1
#include<iostream>
using namespace std;

void fun()
{
class Test // local to fun
{
static int i;
};
}

int main()
{
return 0;
}
Compiler Error:
In function 'void fun()':
error: local class 'class fun()::Test' shall not have static data member 'int fun()::Test::i'

// PROGRAM 2
#include<iostream>
using namespace std;

void fun()
{
class Test // local to fun
{
public:
static void method()
{
cout << "Local Class method() called";
}
};

Test::method();
}

int main()
{
fun();
return 0;
}
Output:

Local Class method() called

4) Member methods of local class can only access static and enum variables of the enclosing function. Non-static variables of the enclosing function are not accessible inside local classes. For example, the program 1 compiles and runs fine. But, program 2 fails in compilation.

// PROGRAM 1
#include<iostream>
using namespace std;

void fun()
{
static int x;
enum {i = 1, j = 2};

// Local class
class Test
{
public:
void method() {
cout << "x = " << x << endl; // fine as x is static
cout << "i = " << i << endl; // fine as i is enum
}
};

Test t;
t.method();
}

int main()
{
fun();
return 0;
}
Output:

x = 0
i = 1

// PROGRAM 2
#include<iostream>
using namespace std;

void fun()
{
int x;

// Local class
class Test
{
public:
void method() {
cout << "x = " << x << endl;
}
};

Test t;
t.method();
}

int main()
{
fun();
return 0;
}
Output:

In member function 'void fun()::Test::method()':
error: use of 'auto' variable from containing function

5) Local classes can access global types, variables and functions. Also, local classes can access other local classes of same function.. For example, following program works fine.

#include<iostream>
using namespace std;

int x;

void fun()
{

// First Local class
class Test1 {
public:
Test1() { cout << "Test1::Test1()" << endl; }
};

// Second Local class
class Test2
{
// Fine: A local class can use other local classes of same function
Test1 t1;
public:
void method() {
// Fine: Local class member methods can access global variables.
cout << "x = " << x << endl;
}
};

Test2 t;
t.method();
}

int main()
{
fun();
return 0;
}
Output:

Test1::Test1()
x = 0