The Setup Database Connection dialog enables you to specify the data source, the connection options, and the database used for the model generation.
The Setup Database Connection dialog appears only if there isn't a database connection specified in the config file.
You could choose an existing connection from the drop-down list of connections, or click Add New Connection to open the Connection Properties dialog and to create a new connection to the database. Also, you could setup the database connection manually using the Connection String textbox.
Type a name for the connection or use the provided default name. This should be a unique name, which identifies the connection string in the <connectionStrings> </connectionStrings> section of the App.Config or Web.Config file (depending on the project type).