In conventional hydrologic, environmental, and engineering problems, soil moisture processes need to be understood at spatial scales ranging from the meter to several kilometers. However, new research issues in vadose zone hydrology have recently raised the need to focus on soil moisture processes at spatial resolutions that are significantly finer than those used in conventional soil physics and unsaturated flow applications. As an example, in the specific problem of the detection of buried objects such as landmines using remote sensing methods, discerning anomalies due to soil moisture from those due to actual threats can only be achieved through a proper understanding of the interplay between soil moisture distribution and heterogeneity at the centimeter scale. In this study, we focused on identifying saturation and capillary pressure dynamics in a 6- by 6-cm pocket of coarse soil embedded in a background fine soil 6 cm below the soil surface and subjected to drainage and wetting. Experimental results showed that water saturation and pressure measurements in the coarse sand pocket revealed a significant coupling of water and air flow, invalidating the assumption used in conventional unsaturated flow modeling studies that the air phase is at atmospheric pressure. The laboratory experiments were simulated numerically using both a single-phase unsaturated water flow model and a two-phase flow model. The two-phase flow approach was able to reproduce the key features of the experimental results, whereas the Richards equation based formulation could not adequately model the local-scale water retention behavior.