MacDNS 1.04 does not perform recursive lookups. However, to the end user and client applications it appears that it does. MacDNS acts as a forwarding nameserver. When MacDNS is required to resolve a Domain Name (Apple.Com) outside its domain(s) (yourcompany.com) it forwards the request to a parent DNS Server (such as an ISP's DNS server) which then performs a recursive lookup and returns the answer to MacDNS.
Definition of recursive lookup:
In a recursive lookup for a host name the DNS server contacts a parent server to find the answer. If the parent server does not have the host name adress in its cache the original DNS server follows a pointer to the next DNS server until it finds the host name.