To hide unwanted data based on criteria, not supported by the target system in the query criteria, set the filtering conditions here.

Example: filter by the found object Distinguished Name.

TIP: For optimal performance, use the Query criteria above to filter objects whenever possible.

Usually, rules use query criteria to limit the query search scope. It improves the performance of the executed rule.

Due to PowerShell limitations, it is not possible to use calculated expressions in query criteria. That is the point where the initialization script can help. You can initialize a global variable in this setting and then use it in query criteria.

IMPORTANT: To use a variable, declared in the initialization script, in the query scope, it must be global: $global:<variable name>

By default, Query criteria are used. But when the MS Graph query condition is specified, it overrides the Query criteria setting.

See this article for examples: How to use Query Builder dialog for Query Criteria and Filter rule settings.