The Docker containers running the CMS need to be able to connect to your MySQL server, so you’ll need to ensure you’ve enabled your MySQL server to accept connections over the network (and then firewalled that off appropriately), and then created a user and database for Xibo to use.
You then put those details in config.env. Note you can’t use “localhost” as the server name, it will need to be the IP address of a non-loopback interface (eg your LAN interface) and you’ll need to ensure your firewall allows access to that.
There’s really no benefit to using a local MySQL server separate to the one Xibo runs itself. We provide remote MySQL for people who want to use a separate server to run MySQL on really.