When displaying a string, Moodle first looks whether a local customisation exists in moodledata/lang/xx_local/component_file.php. If so, it is used. If not, the string from the official language pack is used. (If the string has not been translated yet, the original English version is displayed). Please note that the strings are cached for better performance so if you modify a file directly in your xx_local pack then you will have to purge Moodle caches afterwards. Caches are purged automatically when using the language customisation feature.