This filter is available if you choose the query type Custom Post Type or Dynamic in the widget Dynamic Posts (old version).
If you'd like to create a list of posts, you will want to show only those belonging to one or more specific Terms.
The filter for Terms and Taxonomy will allow you to do this.
Select the Taxonomy you want to filter from.
After choosing the Taxonomy to filter by, you can determine if you want to see only the posts of a certain Term.
Define if you want to filter by one or more specific terms by inclusion or exclusion;
If the terms are multiple you can define whether to combine them in OR or AND.
Dynamic Current Terms (Optional)
A dynamic option is available if you are in a Post Type template, allowing you to dynamically generate the filter based on the current post.
By ACF Taxonomy Field (Optional)
If you are on a Template using ACF (Advanced Custom Fields) and in your post, you have defined this field, the filter will use the set value. It will be different for each post.