Newbie DNS question

I have a few DNS questions that I hope someone can explain to me. I
have been looking on the web but can't really find the answers I'm
looking for.

1. When you have an ISP host your DNS what does this really mean??? Are
they hosting all the local computers that are in your domain????

2. What is the real purpose of an external DNS server???

3. When you do a lookup of some domain names you get NS servers that
are local to that orgization, does this mean that they are hosting
there own extenal DNS????

4. I have a friend who registered a domain name so he could run a
website. He wants to run mail now for the domain. When we did a lookup
for the domain a 0 mx mail.mydomain.com is already present. How does
this work if he doesn't have a mail server setup yet and no machine
named "mail" in his domain.

Any help will be greatly appreicated, espically with the idea of
external DNS and having your ISP host your DNS. I have tried looking up
info on the web, but to no avail.

Thank You