Documentation

Maybe I am just tired but even though this makes sense it could really be written a lot more clearly couldnt it ?

From the web GUI in m0n0wall 1.233 services DNS Forwarder

If the DNS forwarder is enabled, the DHCP service (if enabled) will automatically serve the LAN IP address as a DNS server to DHCP clients so they will use the forwarder. The DNS forwarder will use the DNS servers entered in System: General setup or those obtained via DHCP or PPP on WAN if the "Allow DNS server list to be overridden by DHCP/PPP on WAN" is checked. If you don't use that option (or if you use a static IP address on WAN), you must manually specify at least one DNS server on the System: General setup page.

Can someone explain this more simply to me please

What part are you having trouble with.  It seems clear to me but to be fair, no one explination is going to be clear to everyone.

CS...

Basically you are using the fixed IP address of your m0n0wall's LAN ethernet interface to resolve/proxy all DNS queries on your LAN network.  When the m0n0wall DHCP server assigns IP addresses, it also assigns the LAN IP address as the DNS server to use.

This is important for instance if you have your DHCP clients renewing their IP address information every 3 days, but every day your WAN IP changes from your ISP.  If your ISP changed the DNS servers on you then it would be 2 days until your DHCP clients received the correct information.  By using your LAN IP address, all LAN network clients are assured of a working DNS server as long as the m0n0wall has received a good DNS IP address to use... even if it just received the new DNS information a minute ago.  This also allows a network administrator to easily redirect all traffic to a new internal DNS server (maybe while transitioning a new server into the network).

Setting "Allow DNS server list to be overridden by DHCP/PPP on WAN" is necessary if your ISP might change the IP address of the DNS server.  If you have a static IP address on your WAN than you would not need this option set.

Thanks