System Data is mainly your own data, stored in the hidden Library and ~/Library folders. Examples include Outlook email attachments, local cache files for cloud storage, etc. Worth noting that System Settings > Storage has several categories, but anything that macOS doesn't associate with one is counted as 'System Data'. I also don't find it very reliable.
For example on my work Mac, System Data is 112 GB, about 40 GB of that is Outlook attachments. Applications is reported as 283 GB, but 200 GB of that is allocated local copies of our cloud storage solution, i.e. it's documents (powerpoint files, mostly) that macOS doesn't see that way.
You can use apps like OmniDiskSweeper or Disk Inventory X to view full disk contents by size (you'll have to allow access to various folders/locations on your Mac).