This option is useful is you have two mail servers, one local and one external with the same domain. Normally this is done to save bandwidth. The local mail server will only deliver mails to known users and will pass mails to unknown users within the same domain to the external server.
Say for example a local user sent two email to firstname.lastname@example.org and email@example.com to the local mail server. Mails for firstname.lastname@example.org, who exists in the local mail server, will be sent to Bob's mailbox while mail for email@example.com will be forwarded to the external mail server.