What's going on here?

The second my $foo masks the first; you know that. So the compiler allots different slots for them. Now, the sub foo happens to be in the same scope as that second my $foo, but at the time you call that function, it has not gotten a value assigned, so it is undef.

use Devel::Peek;
use strict;
$|=1;
my $foo = 1;
print "1st foo: ";
Dump($foo);
foo();
my $foo = 2;
print "2nd foo: ";
Dump($foo);

sub foo {
    print "sub foo: ";
    Dump($foo);
    print "foo: $foo\n";
}
__END__
1st foo: SV = IV(0x99b1c8c) at 0x9996768
  REFCNT = 1
  FLAGS = (PADBUSY,PADMY,IOK,pIOK)
  IV = 1
sub foo: SV = NULL(0x0) at 0x9996a8c
  REFCNT = 2
  FLAGS = (PADBUSY,PADMY)
foo: 
2nd foo: SV = PVIV(0x9997b10) at 0x9996a8c
  REFCNT = 2
  FLAGS = (PADBUSY,PADMY,IOK,pIOK)
  IV = 2
  PV = 0
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The second my $foo is allocated at 0x9996a8c, and that's the one seen in the sub.