There are two alternatives to the DNS: /etc/hosts
and
NIS (Network Information System). /etc/hosts
may be
used on simple networks. You must manually synchronize all
/etc/hosts
files on each machine on the network.
NIS is a good alternative. It goes further than the DNS as it also manages user accounts and passwords. It can be used at the same time as the DNS (See "search path for host name" in the "Network configurator" menu.
Given that Linuxconf does not manage NIS servers yet, setting a DNS on your network and pointing all machines to it is a good idea. This is also a good idea because one day or the other, you will hook your network to the Internet (with or without an intervening firewall) and at this time, you will need to point to a DNS server anyway. Yours will be just fine.