The sme server contains its own local dns server. It is automatically updated from the dns root servers. .com, .net, .org.
You can configure your workstation to use the sme server as a local dns server. Sometimes you will obtain a small increase in speed doing it this way.
If a sme server is lacated on the lan there will be one certain "speciality". It will resolve its own local domains to its local adresses (example: 10.0.0.4) While all other domains will be resolved to their ordinary external ip adresses.
If you want to do "exeptions" I think you can do it in the /etc/hosts file.