Padding is the amount of space between the object(s) in your image and the outer edge of your image.
For example, here is an image with 5% padding.
Notice how the object is larger and made to fill more of the available space. This is because the padding is a small amount (5%).
The same image with the padding set to 25% looks like this:
Here, the object is smaller and there more space around it. This is because the padding is high (25%), and so there is a large internal margin.
PhotoRoom applies the padding amount to new images automatically, and the default amount is 5%.
To learn how to change the amount of padding in PhotoRoom, see Change the amount of padding.