There's no problem with using a localhost url for Dev work - obviously it needs to be changed when it comes to production.
You need to go here: https://developers.google.com/accounts/docs/OAuth2 and then follow the link for the API Console - link's in the Basic Steps section. When you've filled out the new application form you'll be asked to provide a redirect Url. Put in the page you want to go to once access has been granted.
When forming the Google oAuth Url - you need to include the redirect url - it has to be an exact match or you'll have problems. It also needs to be UrlEncoded.