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Database setup is done in the entityengine.xml file. There are many options there which are described in the Entity Engine Configuration Guide

The OFBiz package comes with Apache Derby, an open source Java database with DB2 specs and is based on the IBM Cloudscape product. This database is good for demonstration purposes because it is easy to setup and use. It is not the best for large data sets and does not provide the same performance or scalability that a major database would, but compared to HypersonicSQL (that we used to use) it is significantly better because while not as fast for small scale operations it is closer to a production database environment and allows us to catch issues earlier on. Smaller sites might even consider this as an option for their production deployment, especially once the database is a bit more stabilized.