Test data is the data that is used in tests of a software system.In order to test a software application you need to enter some data for testing most of the features. Any such specifically identified data which is used in tests is known as test data.
You can have test data in excel sheet which can be entered manually while executing test cases or it can be read automatically from files (XML, Flat Files, Database etc.) by automation tools. Some test data is used to confirm the expected result, i.e. When test data is entered the expected result should come and some test data is used to verify the software behavior to invalid input data.
Test data is generated by testers or by automation tools which support testing. Most of the times in regression testing the test data is re-used, it is always a good practice to verify the test data before re-using it in any kind of test.