PDS is a Personal Data Server. A PDS is where user's data is stored.
You can self host a PDS and keep control of your data, but still federate with other users in the wider Bluesky social network.
A PDS, or Personal Data Server, is a server that hosts a user. A PDS will always store the user's data repo and signing keys. It may also assign the user a handle and a DID. Many PDSes will host multiple users.
A PDS communicates with AppViews to run applications. A PDS doesn't typically run any applications itself, though it will have general account management interfaces such as the OAuth login screen. PDSes actively sync their data repos with Relays.
Source: https://atproto.com/guides/glossary#pds-personal-data-server