If you input
TEST
into the "Text" field, that would be interpreted as a variable name, and the value of that variable would be copied to and made available within the executed command in the "~passedText1" text variable. If "TEST" is not set, the value of "~passedText1" would then of course also be not set.
If you instead input
"TEST"
into the "Text" field, that would be interpreted as a literal text value, which is made available within the executed command in the "~passedText1" text variable (I.E. the value stored in "~passedText1" would be "TEST").
Note that these variables are command-scoped, so only the called command (and not any of its subcommands) will be able to access them.
Also, as they are separate variables, they only contains a copy of any data you stored in them, and as such modifying that data within the command will not have any effect on the original data (I.E. any variables whose names you entered, and whose values were copied).