The data source in your connection string refers to the machine Sql Server is installed on. If you specify correct macine name, the client application tries to connect to the default instance of installed Sql Server (if there's a default instance)
Another type of instance is a named instance. The main difference is that a named intance cannot be connected to by using only computer name (or IP address alternatively). With named instance you have to specify bopth macine and the name of the instance of Sql Server.
Another thing is that when you connect to a Sql Server outside the local computer, you have to be able to communicate using proper ports. If there are firewalls in between the computers, a port to establish the connection must be opened. When using default setting with Sql Server the default port is 1433.
As already mentioned by another member, you can check the full syntax from
http://www.connectionstrings.com/sql-server-2005[
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