Choosing format

When creating a reference you can either choose from existing formats (default and custom ones) in the Name drop down list. You can also create new formats, edit existing ones, delete formats or load them from other InDesign documents.
Definition: In this field you can create new definitions for the reference you're just creating.
Preview: If your format definition is correct and reference source is selected, you can see the resulting reference in this field. There are two error messages that can appear in this field: 
No Cross-Reference source selected - Choose from the existing markers or paragraphs in the top side of this dialog.
Invalid format definition - Review the format definition you've entered. Check whether no elements opening < or closing symbol > is missing and whether there are no extra spaces. When copy pasting from this web help, please make sure to get rid of the space after the first < character. If you are not sure what is wrong, try re-loading the definitions from some older document.

Choose a Cross-Reference Format. Format definition influences how the resulting reference will look and how it will describe the source and its location. You can either choose a name of the existing format, or create a new definition (either from scratch or from an existing one). In this case your cross-reference will display it has "Custom format"

Composed reference will be marked by cross-reference tags when Type -> Show hidden characters (Alt+Ctrl+I) is turned on