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In creating a new currency import option, I inadvertently replaced the local.xml file on my dev site with the one on my live site, causing the dev site to redirect to the live site. I think I have fixed this but would like a further explanation as to what this file actually does and what I may have changed by copying the live file onto the dev site (I fixed it by changing the database login information, but it would be nice to know if there was anything I had missed).

Can anyone help?

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In Local.xml file magento store the database information host details of the site while installing.

Just have look on your local.xml file.

You need to change the following

<default_setup>
    <connection>
        <host><![CDATA[localhost]]></host>
        <username><![CDATA[root]]></username>
        <password><![CDATA[]]></password>
        <dbname><![CDATA[magento-tdmes]]></dbname>
        <initStatements><![CDATA[SET NAMES utf8]]></initStatements>
        <model><![CDATA[mysql4]]></model>
        <type><![CDATA[pdo_mysql]]></type>
        <pdoType><![CDATA[]]></pdoType>
        <active>1</active>
    </connection>
</default_setup>

Host tag your host name

username tag DataBase User Name

password tag DataBase password

dbname tag Site DataBase Name

Change these things for your dev server.

NOTE: If this file readable to all then Hackers can easily hack your site

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