123 mail merge use and transfer to any other app of information received from Google APIs will adhere to Google API Services User Data Policy, including the Limited Use requirements.
Or in more simple words:
The data that you enter in the Google Spreadsheet is only stored in your Google Spreadsheet. The 123 mail merge add-on reads the data from your Google Spreadsheet in which the add-on is installed. It will not access any other spreadsheets.
123 Mail merge add-on sends one or more emails on your behalf when you start the mail merge.
The add-on runs in a Google Spreadsheet Editor sidebar and uses a window prompt to display info.