Hi @mayank_singh,
When you create a list it creates a table in backend for you and this option let you select on which database you want the table to be created.
1. Adobe Campaign Database - The list table is created in Adobe Campaign database.
2. Database of targeting Dimension - If your targeting dimension is not a table/schema in Adobe Campaign database(I think mostly applicable for FDA), the list table is stored there.
Cheers,
Deb