how to connect to a sql db in localhost

I'm preparing for DP 600 exam, in the exercise lab, I was asked to download a pbix file and log into the data sources using my work or school account. I followed the steps and used Windows authenification method, which caused an error (see below). 

Looking into the Power Query data source, I got quite confused. It looks PB is trying to import data from a sql database stored in localhost, but shouldn't we create such a database in SSMS local host first?

Below is the exercise lab with download url: https://microsoftlearning.github.io/mslearn-fabric/Instructions/Labs/17-enforce-model-security.html