Most of the data that is created in your Mahara is stored in the database. However, all the files that are uploaded by your users, such as their personal photos or documents, need to be stored at a separate place. This is where the data directory comes in.
The data directory is simply a folder that holds all of the stuff belonging to your users. Everything is kept safe by the data directory being outside of the home directory. This set up also makes it easy for you to migrate your Mahara to another server at some point in the future. If you're interested in migrating your site to another server, see https://wiki.mahara.org/index.php/Developer_Area/Developer_Environment#Copying_a_local_install_to_another.
