First, your post demonstrated a little confusion with terminology regarding variables and constants, in that you refer to constants in a module as instance variables and instance variables as local. The following tutorial isn't great at explaining when to use each, but it should help with the terminology:
http://www.techotopia.com/index.php/Ruby_Variable_Scope#What_is_Variable_Scope.3FWith regard to your question about modules, when people use them as a place to configure their scripts, it is generally to create a unique namespace. So you might want to do that if you have a lot of constants to set and they have similar names to what other people might use in their own scripts. It's mostly just a scripting preference whether you house your configuration inside a module. It can make things a lot neater.
1Anyway, I wasn't saying that you should put them in a module necessarily; I just don't think you should use instance variables to hold configuration unless you would ever want the SE played to change depending on which instance of the class is calling the method. In other words, if you want one sprite's Sweat Balloon to make one sound and you want another sprite's Sweat Balloon to make a different sound, then you would use instance variables. Otherwise you are wasting memory by having every instance of a class hold the same values.
With few exceptions, constants are what you want to use for configuration. I suspect that what Pacman meant when he said to localize them was not to make them instance variables, but simply to house the constants in the Sprite_Character class, like so:
#=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
# Play SE On Balloon Pop-Up
# Version: 1.0
# Author: DiamondandPlatinum3
# Date: July 2, 2012
#~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
# Description:
#
# This script allows you to play an SE (Sound Effect) when a ballon icon
# pops-up above someones head.
#~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
#------------------------------------------------------------------------------
# Instructions:
#
# - All you have to do is go into the editable region and change the
# appropriate settings to suit your needs. This includes which SE plays
# depending on the balloon icon that is being shown.
#
# - If you do not wish for a SE to play on any specific balloon icon,
# simply set the value to nil.
#
#=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
class Sprite_Character < Sprite_Base
#=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
# -=
# Editable Region //// ==
# =-
#-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
SE_Volume = 80 # Volume of the SE
SE_Pitch = 100 # Pitch of the SE
Exclamation_SE = "Raise1" # SE played with Exclamation Balloon
Question_SE = "Confuse" # SE played with Question Balloon
Music_Note_SE = "Sound1" # SE played with Music Note Balloon
Heart_SE = "Recovery" # SE played with Heart Balloon
Anger_SE = "Buzzer1" # SE played with Anger Balloon
Sweat_SE = "Down" # SE played with Sweat Balloon
Cobweb_SE = "Sand" # SE played with Cobweb Balloon
Silence_SE = "Stare" # SE played with Silence Balloon
Lightbulb_SE = "Bell" # SE played with Lightbulb Balloon
Zzz_SE = nil # SE played with Zzz Balloon
#=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
#---------------------------------------------------------
# No touchie past here unless you know what you are
# doing. Failure to heed this warning could cause your
# computer to yell and scream at you.
#
# Edit at your own risk.
#--------------------------------------------------------
alias dp3_balloon_sfx_play_9huf start_balloon
def start_balloon
#Find out which balloon is being used and play the SE appropriately.
if @balloon_id == 1
RPG::SE.new(Exclamation_SE, SE_Volume,SE_Pitch).play if Exclamation_SE != nil
elsif @balloon_id == 2
RPG::SE.new(Question_SE, SE_Volume,SE_Pitch).play if Question_SE != nil
elsif @balloon_id == 3
RPG::SE.new(Music_Note_SE, SE_Volume,SE_Pitch).play if Music_Note_SE != nil
elsif @balloon_id == 4
RPG::SE.new(Heart_SE, SE_Volume,SE_Pitch).play if Heart_SE != nil
elsif @balloon_id == 5
RPG::SE.new(Anger_SE, SE_Volume,SE_Pitch).play if Anger_SE != nil
elsif @balloon_id == 6
RPG::SE.new(Sweat_SE, SE_Volume,SE_Pitch).play if Sweat_SE != nil
elsif @balloon_id == 7
RPG::SE.new(Cobweb_SE, SE_Volume,SE_Pitch).play if Cobweb_SE != nil
elsif @balloon_id == 8
RPG::SE.new(Silence_SE, SE_Volume,SE_Pitch).play if Silence_SE != nil
elsif @balloon_id == 9
RPG::SE.new(Lightbulb_SE, SE_Volume,SE_Pitch).play if Lightbulb_SE != nil
elsif @balloon_id == 10
RPG::SE.new(Zzz_SE, SE_Volume,SE_Pitch).play if Zzz_SE != nil
end
dp3_balloon_sfx_play_9huf
end # of function
end # of class
1 Modules have more important uses too, such as multiple inheritance, but that is not related to your question.