“Display Collection Tag” might be more self explanatory, but just Tag is shorter. It’s a mutually exclusive tag (at least for now). Something can be tagged “Alpha” or “Bravo” but not both. It can, however, be “none.” (Layer0 or Untagged) I get how it works.
This dialog seems to say, “The set of all things tagged “r” is not empty,” without telling you more than that. If it really is empty you get this:
It only seems to read more when nested groups have subgroups that anything other than Model Root is offered up.
It seems that if “Test Component” doesn’t have a nested object within it with another tag, it won’t show up at all in this dialog.