Apple doesn’t specify what the data is but it generally consists of temporary files and other elements that don’t strictly form a part of an app’s storage. Apple also notes that this data will “fluctuate according to the system needs,” which means your iPhone should automatically remove system data when it is no longer needed.

Given the information, it sounds like 'System Data' gets high, then decreases creating extra storage, when needed. This would be expected behavior according to: How to check the storage on your iPhone, iPad, and iPod touch "Your device automatically removes cached files and temporary files when your device needs more space."

Why's System Data using all of my iPhone storage? This data will also "fluctuate according to the system needs." This means that temporary data can be written to the storage as System Data, removed when iOS doesn't need it anymore.