Why does this item appear in Windows folders' sidebar, below quick access?

I assume Storage 1 (E:) also appears under This PC when you expand This PC.

The duplicate can be deleted with a registry edit; see for example https://www.majorgeeks.com/content/page/how_to_stop_file_explorer_from_showing_external_drives_twice.html, which has a registry file available for download.

To edit the registry manually:

Open Regedit and copy and paste or navigate to:

Computer\HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Windows\CurrentVersion\Explorer\Desktop\NameSpace\DelegateFolders\{F5FB2C77-0E2F-4A16-A381-3E560C68BC83}

Right-click on {F5FB2C77-0E2F-4A16-A381-3E560C68BC83} and click on Delete.