The Lookup Dataset property in Parameter Advanced Properties will only display those Dataset that have been identified as a Lookup Dataset. To make a dataset appear in this list, it must have the “Lookup Dataset” property checked on the Dataset Properties tab of the Dataset definition:
Typically, a Lookup Dataset will be defined to have two columns: a Display Field and a Value Field (e.g. Customer Name appearing to the user as the Display Field whilst Customer ID is the value passed to the Dataset query) however additional fields can be defined in a Lookup Dataset which will appear to the user when selecting a parameter value (e.g. Start and End dates might appear alongside a “Date Range” parameter).