Settings & keep-time · Services and self-healing
Why does Services say "Holding removed files on this Mac" for the Recycle Vault?
Short answer: No external drive is available, so removed files are being held on your internal disk. Connect your drive and they move there automatically, staying recoverable for about 6 months.
Because there's no external drive to rest removed files on, so they're being kept on your internal disk instead. They're still recoverable, but they aren't freeing space yet.
Connect (or set up) your external drive. Waiting files then move across automatically and stay recoverable there for about 6 months. The row's Open Recycle Vault button shows what's being held. A yellow Waiting for your external drive means the same thing for just some files, and On-Mac holding area almost full means new removals are about to pause.