How to setup external SMTP emailing on a local Magento?

You can set the SMTP host and port in System > Configuration > Advanced > System > Mail Sending Settings.

For sending emails from an external SMTP server, however, I would recommend the free extension SMTP Pro.

Ashley (the extension creator) describes what the advantages are:

This Magento extension is created for expert users who need full control of the Magento SMTP server settings. You can control authentication, security and specify your own host and port. The extension supports self-testing and Magento newsletters. This extension now also has the ability to easily configure and send from Gmail or Google Apps email addresses.