Specify how the documentation of local elements (and their diagrams) must be stored.
NOTE: This parameter is enabled only when the parameter "Generate Details | Elements | Local Elements | Unify By Type" is unselected (false).
When this parameter is true, all documentation files for local elements will be stored in the subdirectory structure reproducing their parent components (in which they are defined).

Namely, for a local element 'localElementName' defined in a parent component, its documentation file will be stored as follows:
Parent Component Element Documentation File
global complex type
'typeName'		 .../schemas/schemaName_xsd/complexTypes/typeName/localElementName.html
global element group
'groupName'		 .../schemas/schemaName_xsd/groups/groupName/localElementName.html
global element
'elementName'		 .../schemas/schemaName_xsd/elements/elementName/localElementName.html
another local element
'elementName'		 .../schemas/schemaName_xsd/.../elementName/localElementName.html

At that, the subdirectory structure of the parent element will be reproduced at any depth according to the rules above.

That system will allow you to know precisely where each element documentation (or diagram) file is located (according to where the element is defined in the schema). So, you will be able to reference it from outside.
The component diagrams are stored in the same directory along with the component documentation files under the same names however with different extension (corresponding the image format), e.g.:

.../schemas/schemaName_xsd/complexTypes/typeName/localElementName.html
.../schemas/schemaName_xsd/complexTypes/typeName/localElementName.png

When this parameter is false, all element documentation files are stored in the same directory:

.../schemas/schemaName_xsd/elements/
When the element name is repeating (which is possible for local elements), the file name will be extended with a numeric suffix, e.g.:
.../schemas/schemaName_xsd/elements/elementName_3.html
Which particular number is used in the suffix is unpredictable. (Its only purpose is to make the file name unique.) That will make impossible to reference the documentation/diagrams of such elements from outside!

However, if you don't need this, the produced HTML documentation files will be more compact (as all links to local element docs will be shorter).

Note:

This parameter can be used only when the unification of local elements by type is disabled (see "Generate Details | Elements | Local Elements | Unify By Type" parameter).

When the unification by type is enabled, several local elements defined in different locations may get documented in the same documentation file. This breaks the whole idea of storing element docs according their definition locations! In that case, this parameter is disabled and false.