How does DNS works?

I’m currently studying the principles of DNS works. Is it possible to have 2 domains
in one web server such as IIS in one computer. Let’s say on Computer WEBFV we will have ISM01.com, ISM02.com and ISM03.com. And also is it possible to use DNS in Windows 98 Web Server for accessing the home site. Usually when I want to access my web site I had to either type the I.P address of my computer as the web host or the COMPUTER_NAME. Could anyone give me steps on how are they done?