Need help with nested variables in Custom Properties

I've been looking at the documentation concerning Ndoe variables in the Admin guide. I'm a little uncertain that I understand the example of nesting multiple variables inside a custom property.

The example uses four variables - Rack, Building, Floor and System Location in combination to define the Location custom property.

Can I use any combination of variables whether they are pre-defined or custom?

Do I simply enter the combined variables in the field next to the custom property on the Device Details tab?