Explanation
The <source> clause in the CDS View Entity Data Definition can be used to specify the data source for the view entity. The <source> clause can accept different types of data sources, depending on the type of the view entity1.
A database table from the ABAP Dictionary: This is a valid type of data source for a CDS View Entity Data Definition. A database table from the ABAP Dictionary is a table that is defined in the ABAP Dictionary using the keyword TABLE or TABLE OF. The name of the database table must be unique within its namespace and must not contain any special characters2.
A CDS DDIC-based view: This is also a valid type of data source for a CDS View Entity Data Definition. A CDS DDIC-based view is a view that is defined in the Core Data Services using the keyword DEFINE VIEW ENTITY. The name of the CDS DDIC-based view must be unique within its namespace and must not contain any special characters3.
You cannot do any of the following:
An external view from the ABAP Dictionary: This is not a valid type of data source for a CDS View Entity Data Definition. An external view from the ABAP Dictionary is a view that is defined in an external application using any language supported by SAP, such as SQL, PL/SQL, or Java. The name of the external view must be unique within its namespace and must not contain any special characters4.
A database view from the ABAP Dictionary: This is not a valid type of data source for a CDS View Entity Data Definition. A database view from the ABAP Dictionary is a view that is defined in an external application using any language supported by SAP, such as SQL, PL/SQL, or Java. The name of the database view must be unique within its namespace and must not contain any special characters4.
References: 1: CDS DDL - DEFINE VIEW ENTITY - ABAP Keyword Documentation - SAP Online Help 2:
ABAP Dictionary Tables - SAP Online Help 3: CDS DDL - DEFINE VIEW ENTITY - ABAP Keyword Documentation - SAP Online Help 4: ABAP Dictionary Views - SAP Online Help