Pokémon Sword and Shield carried over wandering overworld Pokémon from the Let's Go games. Unlike LGPE, these overworld wanderers have identifiable origins, and thus it is possible to legality check them by verifying the correlation between certain values in their data similar to gen 3-4 PIDIV.
Overworld data is stored in the save file in the overworld block. This is why you can save in front of a strong spawn or Galarian bird, reset the game, and encounter exactly the same Pokémon.
It was recently discovered in October 2021 that this is possible to do. Current methods can be done with or without CFW. Additionally, the presence of overworld data allows for the creation of CFW bots that simply scan overworld data for shiny or marked Pokémon without ever engaging in battle.
The categorization can seem complex, so let me break it down: