In order to run Flutter applications using the locally build engine, there are following options available:

--local-engine-src-path to specify the path to engine/src directory
--local-engine to select the engine mode.

With the current structure of the monorepo you need to specify both. However, Flutter has a nice default for --local-engine-src-path: it can be omitted if Flutter engine is checked out to a directory engine alongside Flutter framework checkout in flutter (also see https://github.com/flutter/flutter/wiki/The-flutter-tool#using-a-locally-built-engine-with-the-flutter-tool).

From https://github.com/flutter/flutter/wiki/Setting-up-the-Engine-development-environment:

Create an empty directory called engine for your copy of the repository and cd into it. (It is possible to use a different name, but some tools assume this name unless configured otherwise, so calling it engine will make thing easier.)

So, if following the steps from https://github.com/flutter/flutter/wiki/Setting-up-the-Engine-development-environment, the directory structure would look in the following way:

engine/src/flutter - Flutter engine repository.
flutter/ - Flutter framework repository.

It would be nice to follow this directory structure and avoid the need to specify --local-engine-src-path.