Google local lists three companies BEFORE the number one organic list. That kind of search engine real estate is very valuable.
How often the local results are used is questionable - as some people probably don't even notice it is there (much like the mass amount of people who don't realize Google has paid advertisements). While to others it probably looks like a homing beacon to the results they are looking for.
Regardless, appearing in at least the first page of the listings could have significant benefits. So I started investigating how Google ranks these listings - and found very little. Most responses are to the fact of "Google doesn't say, nor should they. You shouldn't be able to alter your relevancy." OK - not helpful. I did find some information on what Google takes into consideration based on a patent they filed
What Google looks for$%:
Your address and keywords listed on your site
Your address and keywords listed on other sites
Your address and keywords listed in local directories
Reviews of your business
Domain Name
You Address on your own site
Most of the time Google index's your site in Google local by spidering your site and picking up the address. There for it is very important that you make your address clear on every page. Even using a vCard might be helpful, as that standard grows chances are Google will pick up on it. It is even better if you can include your address in the title of a page. Not necessarily the front page, but the about/locations/contact pages as well.
Other Pages
Google also spiders and stores content based on information found on external web sites. If a site mentions your company, along with the same address there is a good chance Google will pick up on this and it will add to the relevance of that location to your local listing. Obviously sites that are not relevant to your keyword are unlikely to provide much help.
Clicking on a local link, you will see a "web pages" tab which list sites that have your address in their content. While optimizing address listings, it is also highly recommended to get some inbound links that have your address/phone number as part of the anchor text. This follows for keywords as well, but all seo campaigns should already incorporate this.
TIP: Writing and distributing a few press releases with your companies address and phone number is a quick way to get a large number of sites linking to you as well as the location information.
Local Directories
If you look at a local listing, it displays several local directories in the web pages tab as well. Some of the more common ones are super yellow, yellowpages.com, yahoo's local listing, etc. Scanning your competition should give you a few good ideas on where you can get your address/phone listed.
Even if getting listed on more pages doesn't bump you up, at least your company now has greater visibility on relevant pages.
Google also lists feedback, reviews, from pages so you might want to start asking customers if they are satisfied to post a review at yahoo local (which Google spiders). Again, even if it doesn't boost your rankings you still have more public PR and it will be listed under your site.
Distance
Apparently, according to a Google patent, one of the things they consider is the distance from the centerpoint of the city. While this is nothing you can change, it does help flesh out what you may be up against or at least why a site is ranking where it is.
The Domain Name
There is some mention in the Google local patent that alludes to if the domain registry information matches the business location it can add some weight. If you have control of your domain name, it is quick and easy so you might as well.
Localize
The state of local search is pretty undeveloped and unexplored, so it is no doubt a shaky ground. All techniques here should boost your local ranking, but worse case it will drive traffic to your site or aid in your organic listings.
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