Excel: Creating a dropdown list in cells

I've seen this a couple of times but never got around to figuring out how it works.

• First, type up the cells which will be used as reference.
•  
• Select the cells you want to apply the "dropdown list" to
• Click on Data > Validation
• Change "Allow" to "List"
• Click the little weird icon in "Source"
• 
• Select the cells containing the list of items
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• Confirm by clicking the little weird icon on the right.
• 
• Click OK
• Now the dropdowns should be enabled.
• 

Source

• Create or remove a drop-down list