If you are configuring the main server of an organisation, you must check this field on. Normally, a sendmail server will accept only email sent to its fully qualified host name. If this is the main server, it will generally receive email addressed to the domain, not the server name. Checking this box allow the server to accept both as equivalent.
For example, if your domain is foo.com and your server is mail.foo.com, then mail to joe@foo.com and mail to joe@mail.foo.com will be accepted and stored locally on this server (If user joe do exist).