Normally, Jenkins uses the local Maven repository as determined by Maven — the exact process seems to be undocumented, but it's ~/.m2/repository and can be overridden by <localRepository> in ~/.m2/settings.xml (see the reference for more details.)

This normally means that all the jobs that are executed on the same node shares a single Maven repository. The upside of this is that you can save the disk space, but the downside of this is that sometimes those builds could interfere with each other. For example, you might end up having builds incorrectly succeed, just because your have all the dependencies in your local repository, despite that fact that none of the repositories in POM might have them.

There are also some reported problems regarding having concurrent Maven processes trying to use the same local repository.

When this option is checked, Jenkins will tell Maven to use $WORKSPACE/.repository as the local Maven repository. This means each job will get its own isolated Maven repository just for itself. It fixes the above problems, at the expense of additional disk space consumption.

When using this option, consider setting up a Maven artifact manager so that you don't have to hit remote Maven repositories too often.

If you'd prefer to activate this mode in all the Maven jobs executed on Jenkins, refer to the technique described here.