To step into a handler, set first the parameters of the handler (you may prefer to do so in a separate AppleScript terminal) to the values passed in the call, then step the instructions inside the handler.

However, if the call to the handler and the handler's definition use the same variable names like in the example below, you can skip this step and step directly into the handler.

on process(the_file)
    -- more lines involving the_file
end process

    -- the call
set x to process(the_file)