I have configured the sendmail. Its up and running successfully.
Now, I can telnet from any client to the server on port 25 and send mails. I dont want that. I want to know how i can set authentication to SMTP server.

Your sendmail is reachable from any client (in your domain only, I hope, otherwise
you're a prime target for spammers...), which means simply that it's listening to
the SMTP port for it's external (read: non-localhost) network interface (ie it's reachable
via it's IP address and/or hostname).

If you don't want to have all your clients connecting to this mail server, there are a few options you can use:
-I'm sure it's possible to configure sendmail to restrict access to who gets to send mail.
I won't be able to help you with this, since I'm not a sendmail expert.
-Use a firewall (like iptables) on your mail server to limit access to the SMTP port (for
incoming connections) to only the clients you want on your network.
=> Check out the Linux - Security forum for this one, I suppose.
-Divide your clients into subnets and provide a different mail server for each subnet via
normal routing.
=> Check out Linux - networking forum.
-...

By the way, your mail server can't tell which program (client) is connecting to your mail server (I think).
So you can't prevent clients from using a standard "telnet" to the SMTP port unless by blocking the SMTP
port altogether, but this would prevent any normal mail clients from sending mail as well...