123 Document 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:
It is used for the Google Document file that is selected in the add-on as template and for the Google Document(s) that are created with the add-on during the Merge process. It is not used for any other file in your Google Drive.
Add-on needs access to the Google Spreadsheet that it is installed in. It is used to create the lay-out of the required Data sheet with the mandatory column names and some example column names. It needs to read the Data rows from the Spreadsheet to determine the values in the document merge process. It needs to be able to write the Status back to the Status column after the Document creation. The add-on will also display toast messages in the spreadsheet to update the user about the status of actions.
123 Document mail merge add-on creates one or more Google Documents (or PDFs), on your Google Drive when you merge the Spreadsheet data with the Google Document you select as the template. Meaning the 123 Document mail merge add-on will read the content only from the Google Document that you designate as a template and will replace the placeholders in the document with data from your spreadsheet for the new to be created merge documents.
As it is an Google Spreadsheet add-on it will display a sidebar in the spreadsheet and show relevant prompts.