Basically, other countries can bank in USD sometimes, so there's a weird corner case that you can send USD to a merchant but can land in their account as $converted_currency or USD that isn't so corner. I'll let patio11 cover this (if/when he gets to it) as there are details I no longer have access to and thus can't do the subject justice.
If you choose USD, then the merchant gets to choose whatever exchange rate they want to convert at, and will be far from the spot price (hence some merchants go out of their way to ask you if you want to pay with USD). If you choose the local currency, then your American bank will give you an exchange rate extremely close to the spot rate and the transaction ends up being much cheaper for you.
