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This N(DCO) number in the datasheet and user's guide assumes that XT1 is sourced from a 32kHz crystal to generate the 1MHz clock. The equation to calculate FLL output is in the User's Guide as depicted in the image above.
Yes indeed you can source the FLL from VLO, but the VLO is not an accurate clock source. In the datasheet, VLO can vary from 4kHz to 20kHz with a typical value of 12kHz. If the FLL reference is not an accurate clock source, you will expect a huge variance across multiple devices on your FLL output. To enable VLO for your FLL reference, you would first need to configure the XT1 to source from VLO.
Then, as estimate to generate 1MHz out from VLO, you would need to configure the N-multiplier to around 82 = ([1000000 / 12000] - 1) if the VLO is around 12kHz.
