YouTube Music leverages YouTube's gargantuan library of official music releases along with covers, renditions, mixes, and everything related to music. This, aside from Google's AI prowess to search music based on loose descriptions, gives YouTube Music an edge over typical music streaming apps which only let you listen to only official versions of the songs. Now, as Google's plans to replace Google Play Music with YouTube Music, the latter is adopting a key feature from the Play Music app and that is the support for your locally stored music files.

As expected, local music playback functionality will allow you to play music stored on their smartphones' internal storage or SD card via YouTube Music. It should grace your library with some rare gems, or certain special versions, that may not be present on YouTube. You can find your music files under the Library tab where it is organized on the basis of Albums, Artists, Liked songs, Playlists, and Downloads (only for YouTube Premium users).

Based on the screenshot shared by MSPoweruser, we can see that the Artists page is split into two tabs, one for "YT Music" and the other for "Device Files." Evidently, the locally stored music is available under the Device Files tab. Meanwhile, we can expect that YouTube Music would restrict playing these local files in the background to users with a YouTube Premium subscription.

Unlike Google Play Music which allowed you to upload music and listen to it on other devices, these local tracks cannot be added to existing YouTube Music playlists or cast other devices. Further, there is no way to sync your existing Google Play Music playlists with YouTube Music, indicating that Google is not yet ready to evict the former from Android in favor of the latter.

The local playback functionality appears to be a server-side switch and may not be available for many users yet (we weren't able to use it either), even if you sideload the latest APK. We can't say for sure but it could also be a region-wise roll-out but will update you when we get to try the feature ourselves.