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When using the XML save format, the XML is saved into the Umbraco.config file as above (where only the label is in CDATA; normally Umbraco will store the full value of a data type into CDATA). This allows the for full XPath querying of picked items.
Relations
In addition to these save formats, there's also a Relations Only option where a local value is not stored, this causes the relations data to be become the primary data source.