Though I find a stronger argument in using containerisation to ensure an identical application run-time environment no matter the infra it’s running on.

If we are talking about infra engineering, then sure. That’s where I find localstack helps

The reason I'm asking is because on my free time I'm developing a cloud IDE but I'm having trouble understanding the market. I beleave cloud dev services will be a huge market. But I don't understand how people use it practically in their dev setup.

I found at first testing was arduous, but you learn to adapt. In my case, I increased the amount of debug logs my application throws (can also be useful to enable in prod when trying to hunt down an issue) and invested time in creating unit/integration tests that run outside of the container/lambda to validate specific paths/features. Worst case there's always docker exec and language-specific debugging when I want to dig in manually.

I'm still pretty skeptical about serverless (I mostly use it for cloud-specific automation), but as much as people like to shit on Docker it's been pretty great to use from an ops perspective. I interpret most negativity about it as curmudgeonly reactions to the admittedly excessive hype in the technologies, with some fairly pedantic complaints about the (imo minimal) overhead such technologies incur thrown in as an uninteresting justification.

If they don't work the same on local computer than on ECS perhaps docker failed to deliver what promised?

BTW: I absolutely hate debugging in AWS, it's such a nightmare, docker was the first thing that made thing hard even on premises, but AWS pushed things to 11.

I think the key to sanity if you have to use public cloud is to put extra effort so you discover all bugs locally before you deploy to public cloud. Which probably is not a bad thing.