All users are authenticated using the Radius server (the first method). If the Radius server doesn't respond, then the router's local database is used (the second method).
Lightweight Directory Access Protocol is ued to access directory servers. A directory server is a hierarchical, object oriented database (DB) (try to stay awake!). A simple example is the telephone directory, which consists of a list of names (of either persons or organizations) organized alphabetically, with each name having an address and phone number associated with it.
If your setup is LDAP for guest users, then your order is LDAP then local and you can remove radius.
Local should be kept as a backup just in case. You can define a username and password and this helps determine if the LDAP connection is broken, because local user should not work if LDAP is functioning.