The data tab is used for defining FetchXML, which will determine what sorts of records the party list will fetch. Party list allows you to select Lead, Account, Contacts or System users from entities as your fetch.
The FetchXML text area determines what sort of data a widget will be populated with. Clicking the Load Default Fetch option will populate the FetchXML area with a default fetch based on the CRM Entity chosen. Clicking the Build button FetchXML builder window will open.
For more information on how to use the fetch builder, please see the FetchXML Builder How-To.