Hotspot static DNS not working

So I may have this all wrong but I thought that if i set a static dns enter that this is used first prior to resolving out over the world. So example I have a static dns that point back to the controller
10.0.0.1 if i set the name to say test.net it will actually resolve out to the test.net web site and not my internal website. if i set the name to xcdez.net which does not exist then it resolves back on its self as expected. Is this correct? I had set my dhcp server to use 10.0.0.1 as dns as well.

Thanks