How is stack memory used for fuctions and local variables? I wanted to save some values to the EEPROM and also wanted to free up SRAM by avoiding some variable declarations, but EEPROM memory is byte wise.

If I want to store an int value, I have to use some expressions repeatedly. I thought I would make some functions for those. But I am concerned that, if I create a function, it would still occupy SRAM memory, better I declare an int variable instead of using EEPROM.

How are the functions and the local variables stored in SRAM? Does it only store the address of the fuction pointer from the flash memory or all the variables and commands are stored on the stack?
Local variables and function parameters are stored on the stack. However, that is not a reason not to use them. Computers are designed to work that way.

Stack memory is only in use while a function is active. As soon as the function returns, the memory is freed. Stack memory is a GOOD Thing. 

You don't want to use recursive functions with lots of levels of recursion, or allocate lots of large structures on the stack. Normal use is fine however.

The 6502 stack is only 256 bytes, but the Apple II works just fine.