System Data technically, has a mount point /System/Volume/Data
With a mount point of /System , this Volume is part of the Operating System and can not be deleted - full stop
It is where your User Account (s) was made when the computer was First Setup as New
We can point-out what may be included in this Volume
Some of which as been already mentioned
Though, how to reduce this is a long and complicated trial and error process
The category is a collection of files which include:
• System temporary files
• macOS system folders
• Archives and disk images (.zip, .iso, etc. - often found in the Downloads folder)
• Personal user data
• Files from the user’s library (Application Support, iCloud files, screensavers, etc.)
• Cache files
• Fonts, plugins, extensions
• Other files that are not recognized by a Spotlight search
• Media files that cannot be classified by Spotlight as a media file because they are located inside of a package like Developer Files which Presently Occupy 2.63 GB as per your image
Though, as hat appears to be some type of a Developer working on this machine
Using a 500 GB Internal Drive is going to be a challenge at best
- If using a Cloud Based Services to sync files, like iCloud and One Drive. These can also occupy space on the Internal Drive
The files can be located anywhere on your hard drive. The files that you have control over are located in the Documents, Downloads, Pictures, Music and Movies folders.
You can use either of these two free apps, GrandPerspective , to find the largest files on your drive so you can determine if they can be deleted or moved to an external HD for storage.
Another Application to find and analyze what is using space on the drive is Etrecheck >> Clean up

To close out my portion in this question
Unfortunately or fortunately depending upon ones' perspective
The suggestion from @tbirdvet is only a " Quick Fix "
It will not cause the Internal Drive to grow any larger that the current 500 GB Drive Capacity
The implications being, that on the next purchase
Spend the extra money, up front, for a computer that has a large enough SSD Drive and RAM for the current needs and add in what you project your needs will be for the next 3 - 5 Years ( as best as you can )
Doing so will, generally Future-Proof the computer