Nested Drop downs are nothing but drop down options that appear based on the initial drop down option that the end user have chosen.
This is particularly helpful for cases that involve answers that are dependent with each other.
For example, If you want to know the end user's Country, State and the City, you would ideally want to start with the Country and based on what they chose, you need to populate the States and similarly for the Cities. This is where the Nested Dropdown component will be useful.
Once you click on the Nested dropdown, you will have options to select your question, a description to your question and the possible answers for a first dropdown, a second dropdown and a third one.
All the changes can be made in the Json that is available on the left bottom side of the step. For Nested dropdown, the key would be the ID or the Key Identifier, list will be the list of options under that key, Label is the actual option that the end user selects.
The below video describes on how you can use the nested dropdown and the different design options that it has.