The Config Parameter property allows you to add configuration parameters specific to only the current instance of the custom field.
Ideally, if you add configuration parameters while setting up the Custom Field extension, it applies to all instances of the custom field automatically. However, if you want to override the default config for a particular instance of the custom field, you can use this field while adding the custom field to your content type.
Here’s an example to understand this better. If, while setting up the Color Picker field, you specify in the Config Parameter field that the default color should be "green," every time you add an instance of the custom field, the default color would be "green."
However, if you want to change the default color (from green to red) for a particular instance of the custom field in your content type, you can specify it in the Config Parameter field property of that instance, while creating the content type. As a result, only that instance of the Color Picker field will have red as the default color. Other instances will continue to get the config ("green" as default color) from the default config settings.
Warning: Refrain from providing any kind of secret keys that might allow unauthorized data manipulation, as the value can be viewed by users who have access to your Custom Field.