External SSD contains GBs of memory even after data is removed from it
I am not sure if I completely understand what you're asking, but I'll try to answer your questions:

can we factory reset the device?

If you are talking about the SSD, then there is something like a factory reset. It is called formatting and you can do it in the disk-utility app (pre-installed on macOS)
You can follow Apple's guide or this guide. In short, I recommend formatting in MacOS Extended and using the GUID table, but I am no expert whatsoever.
This process will delete all files on the drive.

Also, the format it is using is ExFAT, does Mac uses it by default or
it depends on the SSD? The other ones are listed in the below
screenshot

ExFat is a format type. Formatting types are mentioned in the second article. In short, ExFat can be read from both windows and Mac, yet it doesn't always play nicely with Mac and may eventually lead to compatibility issues. Therefore, I would not recommend it, also because with compatability software like Paragon you can read MacOS Extended drives in Windows.