If you store a large number of smaller files to your disk, there won't be enough space to accommodate all their metadata in the reserved MFT space. Of course, since some files are going to be much bigger, this is an average. A standard (12.5 %) MFT size will be enough to provide metadata space for all your files if you fill the rest of your disk with 8 KB files. This is because the MFT size is proportional to your number of files.

Setting 3 reserves approximately 37.5 %.Setting 1 reserves approximately 12.5 % of the volume.There are 4 settings available when you format a hard disk in NTFS: What explains a good part of the 'bloated' metadata in NTFS compared to, say, FAT32 is the need to store Access Control Lists - although there are more things in there. (Some space is also used for the boot sectors, and so on.) This article about NTFS technical side will give you some more details, but most of this space is taken by the Master File Table. Tl dr: This is space reserved for metadata storage.

How to format wd elements 2tb to fat32