Netlify allows users to add environment variables to their builds, which can be defined through a user-friendly interface. However, this approach has the limitation that these variables cannot be accessed in local development environments. To overcome this, developers use a configuration file, such as `[environment_name].config.js`, to store sensitive information like secret keys. This file is then loaded using Webpack's `DefinePlugin` and allows for dynamic access to environment variables based on the current build configuration. Additionally, users can bypass the need for a separate Webpack config by passing variables directly through the `npm start` command, making it easier to test their site locally with different variables. By utilizing this approach, developers can ensure that their application behaves differently in development and production environments.