Image albums can have images added directly to them, they can get images automatically, and they can inherit images from their "parents".
In this example, a location will automatically get all images with the tag "Outdoor", plus any images that are manually (explicitly) added to its parent location. Images that its parent location would get automatically are not added here.
An album will never have the same item in it more than once. Even if "VSys dude" is manually added here, and it as the tag "Outdoor", and this location's parent has that image in it, this album will only have "VSys dude" once.
Automatically acquired and inherited images don't show on this list. VSys Live figures out which images to display when it goes to show this location's album.
(Not all image albums support this: things that don't have parents like open schedule jobs can't inherit.)