hi Harsimrat
Local processing mode refers to report processing that is performed by the ReportViewer control in the client application. All report processing is performed as a local process using data that your application provides. To create the reports used in local processing mode, you use the Report project template in Visual Studio. For more information, see Configuring ReportViewer for Local Processing.
Remote processing mode refers to report processing that is performed by a SQL Server 2005 Reporting Services report server. In remote processing mode, the ReportViewer control is used as a viewer to display a predefined report that is already published on a Reporting Services report server. All processing from data retrieval to report rendering is performed on the report server. To use remote processing mode, you must have a licensed copy of SQL Server 2005 Reporting Services. For more information, see Configuring ReportViewer for Remote Processing.
How to select report viewer processing mode:
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Local processing mode is recommended for applications that include small to medium-sized reports and datasets. Because all data and report processing is performed on the client, you might encounter performance degradation if you attempt to process large or complex reports and queries. Local processing mode is also recommended if you require a straightforward deployment strategy where all parts of the application run together on the same computer.
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Remote processing mode lets you centralize report storage and management, set policies and secure access to reports and folders, control how reports are processed and distributed, and standardize how reports are used in your business. Reporting Services can be installed in single-server, distributed, and clustered configurations.
So you can select the processing mode according to your application function and environment.
For more information, Please click the link below:
http://msdn2.microsoft.com/en-us/library/ms251671(VS.80).aspx