So, following this question here and a number of other questions about subdomains on localhost, we learned that /etc/hosts isn't capable of handling wildcard routes and we need a DNS system. Ok, I have installed Bind9 on my machine (Ubuntu). Now, could someone finally explain how to set it up to route *.domain.local to 127.0.0.1
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You need to add the following A record to your "local" zone:
*.domain.local. IN A 127.0.0.1
Don't forget to configure your machine to use that DNS server (in /etc/resolv.conf).

faker
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And if it's the only zone you're hosting don't forget to set at least one forwarder. – John Gardeniers Oct 08 '10 at 01:15
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Thank you guys, that worked out for me. However I also had to add a zone "domain.local" to /etc/bind/named.conf (same as "localhost"). – Dziamid Oct 08 '10 at 19:35