what does 'add sql database'

Hi, I would like someone to clarify me about what exactly the term 'add sql database' (in the 'add new item' tab) do?

Does it create a new database from start or is it something else all together?

Also, when does one need to use the 'add sql database' feature, is it used when a developer has created a fresh website and needs to store the values inputted by a user of this site into a fresh database.

Thanks!
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