How to declare local variables in postgresql?

There is an almost identical, but not really answered question here.

I am migrating an application from MS SQL Server to PostgreSQL. In many places in code I use local variables so I would like to go for the change that requires less work, so could you please tell me which is the best way to translate the following code?

-- MS SQL Syntax: declare 2 variables, assign value and return the sum of the two 
declare @One integer = 1
declare @Two integer = 2
select @One + @Two as SUM

this returns:

SUM
-----------
3

(1 row(s) affected)

I will use Postgresql 8.4 or even 9.0 if it contains significant fetaures that will simplify the translation.

Postgresql historically doesn't support procedural code at the command level - only within functions. However, in Postgresql 9, support has been added to execute an inline code block that effectively supports something like this, although the syntax is perhaps a bit odd, and there are many restrictions compared to what you can do with SQL Server. Notably, the inline code block can't return a result set, so can't be used for what you outline above.

In general, if you want to write some procedural code and have it return a result, you need to put it inside a function. For example:

CREATE OR REPLACE FUNCTION somefuncname() RETURNS int LANGUAGE plpgsql AS $$
DECLARE
  one int;
  two int;
BEGIN
  one := 1;
  two := 2;
  RETURN one + two;
END
$$;
SELECT somefuncname();

The PostgreSQL wire protocol doesn't, as far as I know, allow for things like a command returning multiple result sets. So you can't simply map T-SQL batches or stored procedures to PostgreSQL functions.