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how does relay_domains=$mydestination work?

Hello,

out of curiosity: the compatibility readme documents "backwards-compatible
default setting relay_domains=$mydestination" and that the empty value
"default value has changed from "$mydestination" to the empty value. This
could"

under which curcumstances can this cause an error?
if the domain is in "mydestination", it should be treated as local.

is it related to the parent_domain_matches_subdomains setting?