L-GW is specified in TS 23.060 [29] and in TS 23.401 [30]. The Local IP Access (LIPA) is achieved using a L-GW colocated with the H(e)NB. The L-GW is connected to the Serving Gateway (S-GW) or to the SGSN via the SeGW.
Basically, it is a functionality that can colocate with the HeNB, which can provide EPC data offloading capability by routing data between 2 UEs in the same cell locally, instead of breaking out into the EPC.