Hey @C20, good questions!
If you're referring to the Daily Mixes, they won't consider your local files since the data isn't fetched the same way as tracks already in the catalogue.
Regarding how they work, each mix is based on a different genre of music you regularly listen to, and is loaded with artists you love, plus a few recommendations from us that fit the same vibe. You can find more info on how Daily Mixes work here.
Hope that explains things 🙂