Why System Data is 700GB of my storage space?

Hello _user_question,

We see that you already found Free up storage space on your Mac - Apple Support which is the right place to start. System Data does include everything that's not fitting in other places, such as the operating system. It does fluctuate and free up space as the system needs it. If you don't see that happen, then contact Apple Support to look into it further with you.

Thanks for using Apple Support Communities!

For me the issue after an update was due to Apple Music.

Deleting the app didn't work. Issue resolved by using the Terminal to delete the folder (rmdir -r Music)