OP preferred an example. Also, what @minaev wrote, was only a part of the story! So, here we go...

Example 1: No (break or last) flags

server {
    server_name example.com;
    root 'path/to/somewhere';

    location / {
        echo 'finally matched location /';
    }

    location /notes {
        echo 'finally matched location /notes';
    }

    location /documents {
        echo 'finally matched location /documents';
    }

    rewrite ^/([^/]+.txt)$ /notes/$1;
    rewrite ^/notes/([^/]+.txt)$ /documents/$1;
}

Result:

# curl example.com/test.txt
finally matched location /documents

Explanation:

For rewrite, the flags are optional!

Example 2: Outside location block (break or last)

server {
    server_name example.com;
    root 'path/to/somewhere';

    location / {
        echo 'finally matched location /';
    }

    location /notes {
        echo 'finally matched location /notes';
    }

    location /documents {
        echo 'finally matched location /documents';
    }

    rewrite ^/([^/]+.txt)$ /notes/$1 break; # or last
    rewrite ^/notes/([^/]+.txt)$ /documents/$1; # this is not parsed
}

Result:

# curl example.com/test.txt
finally matched location /notes

Explanation:

Outside the location block, both break and last behave in the exact manner...

• no more parsing of rewrite conditions
• Nginx internal engine goes to the next phase (searching for location match)

Example 3: Inside location block - "break"

server {
    server_name example.com;
    root 'path/to/somewhere';

    location / {
        echo 'finally matched location /';
        rewrite ^/([^/]+.txt)$ /notes/$1 break;
        rewrite ^/notes/([^/]+.txt)$ /documents/$1; # this is not parsed
    }

    location /notes {
        echo 'finally matched location /notes';
    }

    location /documents {
        echo 'finally matched location /documents';
    }
}

Result:

# curl example.com/test.txt
finally matched location /

Explanation:

Inside a location block, break flag would do the following...

• no more parsing of rewrite conditions
• Nginx internal engine continues to parse the current location block

Example 4: Inside location block - "last"

server {
    server_name example.com;
    root 'path/to/somewhere';

    location / {
        echo 'finally matched location /';
        rewrite ^/([^/]+.txt)$ /notes/$1 last;
        rewrite ^/notes/([^/]+.txt)$ /documents/$1;  # this is not parsed
    }

    location /notes {
        echo 'finally matched location /notes';
        rewrite ^/notes/([^/]+.txt)$ /documents/$1;  # this is not parsed, either!
    }

    location /documents {
        echo 'finally matched location /documents';
    }
}

Result:

# curl example.com/test.txt
finally matched location /notes

Explanation:

Inside a location block, last flag would do the following...

• no more parsing of rewrite conditions
• Nginx internal engine starts to look for another location match based on the result of the rewrite result.
• no more parsing of rewrite conditions, even on the next location match!

Summary:

• When a rewrite condition with the flag break or last matches, Nginx stops parsing any more rewrites!
• Outside a location block, with break or last, Nginx does the same job (stops processing anymore rewrite conditions).
• Inside a location block, with break, Nginx only stops processing anymore rewrite conditions
• Inside a location block, with last, Nginx stops processing anymore rewrite conditions and then starts to look for a new matching of location block! Nginx also ignores any rewrites in the new location block!

Final Note:

I missed to include some more edge cases (actually common problem with rewrites, such as 500 internal error). But, that'd be out of scope of this question. Probably, example 1 is out of scope, too!

You may have different sets of rewrite rules for different locations. When rewrite module meets last, it stops processing the current set and the rewritten request is passed once again to find the appropriate location (and the new set of rewriting rules). If the rule ends with break, the rewriting also stops, but the rewritten request is not passed to another location.

That is, if there are two locations: loc1 and loc2, and there's a rewriting rule in loc1 that changes loc1 to loc2 AND ends with last, the request will be rewritten and passed to location loc2. If the rule ends with break, it will belong to location loc1.