The system data apparently contains the Time Machine backups that haven’t been flushed to your external backup, including folders that are set to be ignored. I

The system data apparently contains the Time Machine backups that haven’t been flushed to your external backup, including folders that are set to be ignored. I discovered this while trying to restore a docker vm image that was maybe ignored, while not having enough space on the drive to restore it back, because deleted versions still take up space in the system data, even when the trash is emptied.