First the lookup needs to be connected to the Lookup in the text field.
Once you have done that, you will see the lookup settings in the panel on the right.
From the "lookup" dropdown, select the database you want this field to access. As we want to connect products from Xero on this form, we will select "xero_item" from this list.
Follow the link to see the continued process of choosing what you would like displayed in your lookup dropdowns: