Well... So what is the IP that is placed in this field? Do I have to install Tor?
Sorry for the questions, I'm not a Tor expert.
Yes first of all you have to install Tor.
After that go to the settings/configurations on Bitcoin Core where you found ur localhost ip. Depending on ur setup of the tor service you have to add the port. Usually its '9050' with the default configuration.
What you are simply doing:
When you put ur localhost ip (127.0.0.1) in the IP-field you are telling Bitcoin Core to connect to the Tor-service that is running on ur system.