This is an image field formatter, which inherits settings from the build-in default image field formatter in the Drupal core, acts the same as the built-in one, but if the image does not exist, display an avatar letter generated instead. The letter depends on the account's display name.

In general, it's used to the built-in User Picture field of the user entity. But it's not limited to be used in other image fields in any entity types.