What is the ‘selected’ parameter in wp_dropdown_categories() for?

The selected parameter just defines which option is selected when the select field is rendered.
it’s an optional parameter that defaults to the current category or 0

$defaults['selected'] = ( is_category() ) ? get_query_var( 'cat' ) : 0;

(https://developer.wordpress.org/reference/functions/wp_dropdown_categories/)

This function is for rendering a category drop down, but you can override it to work with any taxonomy. It looks like your code is using an arbitrary taxonomy rather than a ‘category’. So you need to provide the value.

In your code where is the value for $taxonomy coming from? What php template is this code running in?

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