"System Data" Taking Up Over 800GB of Storage

You can’t directly manage the contents of this category. That is done by macOS. The category varies in size depending on the current state of your Mac.

What you can do...

• Empty the Trash in the Dock.
• Empty the trash in the Photos app.
• Delete unused and unneeded installers – .zip, .dmg – from your downloads folder and desktop.
• Reboot your Mac at least weekly.
• Transfer files that you don’t use daily to an external drive and then delete them from the startup drive and empty the trash. Files that take up the most room are movies, images and music.
• Force Time Machine to delete local snapshots: About Time Machine local snapshots - Apple Support
• Use Disk Utility to delete APFS snapshots: View APFS snapshots in Disk Utility on Mac - Apple Support 

This from Apple on the subject of storage management:

Free up storage space on your Mac - Apple Support

What is System Data?

System Data in macOS once used to be Other storage. It includes all types of data that do not fall into other categories of storage: Applications, Documents, iCloud Drive, iOS files, Photos, etc., along with other system files, downloaded items, and cache.

I would try to backup to a external SSD, Documents and Photos, and other items that you have downloads, especially .dmg's and zip files as well as pkg files.