Not at all to defend Meta but "a feature that allows software developers to test applications" is a dubious definition of localhost. I also can't come up with a better one.
The term "localhost" refers to the default entry in all modern operating system host files. By default modern operating systems provide a hosts file that provides domain name resolution without reliance upon the Domain Name System (DNS) protocol. By default these host files typically ship with one entry, a domain named "localhost" that points to IPv4 loopback interface 127.0.0.1.
Then what are we talking about? If this is only about comfort of people who don't give a shit anyways then just relate it to money or cartoons or whatever and walk away. It just doesn't matter.
Some concepts just can't (or shouldn't) be broken down to the level of lay person friendly though. There are just some technical concepts that have a complexity floor that if you drop below you are no longer explaining the actual concept but a fantasy.
For a judge trying to rule on a technical case, a poor layperson analogy and lead to a confidently wrong legal conclusion that has serious negative consequences. Thats why court appointed neutral experts are important.
Localhost is “on the device itself”, but so is an installed App and files and user settings.
This is also missing a lot of what localhost means in this context (networking, violation of the usually way similar apps and websites work on an Android device, etc).