Sendmail uses DNS (local, network) to resolve MX records for each host its sposed to transfer mail to.
U can perform the same in nslookup to see if it works:
> set type=mx
-sendmail.org preference=20, mail exchanger=mail1.reference.com
-mail1.reference.com inet address=126.96.36.199
u see that even the address may me email@example.com, the mail will be delivered in real to mail1.reference.com, cuz the MX record specifiy so.
If the MTA cant find the MX record (or MX with other priority) it cant deliver.
Make sure the MX records are available and use the MTA's debug option for more info.