Competitive federalism means that regional or local governments compete with other regional or local governments.
People choose which regional or local government to live under. The governments compete for citizens. Investors choose which regional or local government to invest in. The governments compete for investment.
Economies which are based on competition between businesses are more successful than economies which are not based on competition between businesses. Competition between governments is good for the same reasons that competition between businesses is good.
Some socialists say that competition is the opposite of cooperation. This is wrong. The opposite of cooperation is conflict. Competition is a mix of cooperation and conflict. Competition requires rules. Competitors confict with each other within the rules, but cooperate in enforcing the rules.
The central government makes and enforces the rules of competitive federalism.
Some people think that competitive federalism means that the central government competes with the regional and local governments for control of government policy. I think that the central government should not compete with the regional and local governments because the central government cannot make or enforce the rules of the competition fairly if the central government is a competitor.