From MozillaZine Knowledge Base
In Thunderbird and SeaMonkey, "Local Folders" is the name given to the set of mail folders at the bottom of the folders pane. Many new users don't know what these Local Folders are for, or why they're called "Local Folders".
Uses for Local Folders
Renaming Local Folders
To change the name of Local Folders, just right click on "Local Folders" in the folders pane, choose "Settings", and then in the dialog that pops up, enter the new name in the "Account Name" field. Alternatively, you can go to "Tools -> Account Settings" (in Thunderbird) or "Edit -> Mail & Newsgroup Account Settings" (in SeaMonkey), then click on "Local Folders" in the left-hand pane, and type in the new name in the "Account Name" field.
Moving the storage location for Local Folders
Getting rid of Local Folders
The easiest and safest way to hide Local folders used to be the "Hide Local Folders" tweak in the Mail Tweak add-on. It hides it from the folder pane, but that account is still accessible from the menu. Unfortunately the Mail Tweak add-on has been abandoned and is a frequent cause of interoperability problems in recent versions of Thunderbird. The best solution is to keep Local Folders collapsed in the folder pane and ignore it.
You could edit the prefs.js file file in your profile folder per  or  to get rid of it. That works, but it requires you to understand how account settings are stored in the prefs.js file and any mistakes can seriously mess up your profile. If you try it, be sure to back up your profile first. It also has the disadvantage of being much harder to undo - at least with the Mail Tweak add-on you can uncheck the "Hide Local Folders" setting if it causes problems.
Local Folders lost during an upgrade
If your local folders are missing after upgrading Thunderbird (and you didn't deliberately get rid of them) set the advanced folder view to All Folders using View -> Folders -> All. If they are still missing something probably deleted its account from the list of known accounts in the mail.accountmanager.accounts setting.
Type mail.accountmanager.accounts in the edit field in the Config editor and see how many account ids it lists. For example if you have two POP accounts and they're set to account4,account3, Thunderbird only knows about two accounts. It should know about three (two POP accounts and one local folders account).
If the count is wrong: