Data means simply all the stuff Shades have to remember between runs (sessions). This means settings (options, config, ...) and background pictures. These are stored as copied and renamed files.
In folder "Application data", that usually (at least on XPs) means "C:\Documents and Settings\Your user login\Application Data". Note that "Application Data" is translated to your system language. This is common place for data storage - you can often find here many other interesting things, such as Thunderbird, iTunes, Winamp - all these programs store here something. Shades put their data to "Shades\VersionNumber", such as "Shades\4.0".
As you can see below, there is one file with settings (Options.dat) and some background pictures. They are, as already said, 1:1 bitwise copies of original files, only renamed and copied here. Renaming consists of two actions: first change any potentially bad characters in file name to underslashes (_), then prepend random string generated as hexadecimal notation of 32-bit number. This is to ensure that you can add backgrounds with identical file name.
You can get directly to folder with files for the version of Shades you are running by opening options dialog and pressing button "show folder with this version's files" on tab "files". Another way to get there is by opening explorer window, typing into the address bar string %appdata% and pressing enter - you will get to "Application Data", where should be folder "Shades".