Hi David,
The sample codelists-template.xls file provided with the Validator is used to generate codelists as part of the define.xml creation process. During validation, if a define.xml document is provided and contains codelists bound to variables present in your data, those variables will be checked against the codelists in your define.xml. This is the recommended way of performing custom Controlled Terminiology checks, as typically you are expected to provide this codelist metadata in your define.xml as part of a submission.
Creating your own external Controlled Terminology file is certainly possible, and involves using a supported input file format and custom Lookup validation rules. The format of the provided Controlled Terminology file is not necessary; we just maintain the format provided by CDISC so that users may easily drop in updates as CDISC makes changes to that file available. Going this route involves interacting with the configuration XML though, which is why using the codelists in your define.xml is strongly encouraged.
Regards,
Tim