Prefab view portraits are, well, portraits that can be displayed in dialogues, menus or HUDs. It uses a camera, render textures and spawning the combatant's prefab somewhere way off screen to display them as images in your UI.
The base settings for prefab view portraits are made in Menus > Menu Settings, the Prefab View settings can be found at the bottom.
To set up a prefab view portrait for a combatant, add a portrait in its settings and enable Use Prefab View in it. Make sure to e.g. have all prefab view portraits in their own portrait type :)