Your code commented:

my $value = "four"; # lexical variable
my @array = ( "one", "two", "three" );

foreach $value (@array)
{
    # variable $value inside the loop is set
    # to each element of @array at runtime
    print "foreach value: $value\t";
    function(); 
}
# outer scope lexical $value visible here
sub function
{
    # outer scope lexical $value visible here
    # with its initial value
    print "function value: $value\n";
}
[download]

Had you used a package global throughout, the outcome would have been different:

$value = "four";
my @array = ( "one", "two", "three" );

foreach $value (@array)
{
    print "foreach value: $value\t";
    function();
}
sub function {
    print "function value: $value\n";
}   
__END__
foreach value: one      function value: one
foreach value: two      function value: two
foreach value: three    function value: three
[download]

What about allocating a sub in a block's scope? Let's look at this weird construct:

my $value = "four";
my @array = ( "one", "two", "three" );

foreach $value (@array) # note outer $value variable
{
    print "foreach value: $value\t";
    function();
    sub function {
        print "function value: $value\n";
    }
}
__END__
foreach value: one      function value: four
foreach value: two      function value: four
foreach value: three    function value: four
[download]

The result is the same, although the sub is allocated inside the for() block scope. Why? Because the sub, on compilation, gets the outer $value, whereas the loop iteration variable is an alias to the outer.

But what about that?

my $value = "four";
my @array = ( "one", "two", "three" );

foreach my $value (@array)
{
    print "foreach value: $value\t";
    function();
    sub function {
        print "function value: $value\n";
    }
}
__END__
foreach value: one      function value: 
foreach value: two      function value: 
foreach value: three    function value:
[download]

How come? Declaring the loop variable as a my variable to the loop block, the inner loop gets that at compile time, and closes over it (it's a closure), and this variable is initialized empty (assignment happens at run time). The inner sub variable is different from the aliased loop variable.

All this is presented here with a lot of handwaving. The perl sources might provide a clue about what's really happening. Pass arguments to your subroutines to be save.

_($_=" "x(1<<5)."?\n".q·/)Oo.  G°\        /
                              /\_¯/(q    /
----------------------------  \__(m.====·.(_("always off the crowd"))."·
");sub _{s./.($e="'Itrs `mnsgdq Gdbj O`qkdq")=~y/"-y/#-z/;$e.e && print}