Hi Maciej Skiba,
Thank you for using our services.
We distribute Sitefinity with a built in SQLExpress database. It is located in ~/App_Data/ directory. When you select this option you should not type in anything additional - the instance name is automatically populated. You should only make sure that the identity of the application pool in which your Sitefinity website will be running has full control over the App_Date directory.
All the best,
the Telerik team
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