I can only describe my experience with relaying and hope it helps.
We have a system that has its own smtp capabilities but for business reasons we want all email routed through our exchange box. So on my system I define my outbound smtp server as the exchange system, and enable relay on the exchange side for the ip address of my system. This in essence makes a forwarding agent out of my system and let's exchange handle the smtp piece.
I've also seen the relay error generated when attempting to create a pop3 mailbox to yahoo let's say from within exchange. If relaying is prohibited by default on the exchange box you will find your pop3 account can receive mail fine but you will be unable to send mail from the pop3 account from within exchange.
The workaround is to use the mail providers web client in whole or just to send emails from the account while maintaining the ability to have the inbound mail available/archived by exchange.
In short the message does not indicate an error moreso than a business practice and is usually encountered on closed networks in a work environment.
Again...just my experiences with relaying issues as I've set a relay up and also been thwarted trying to get all my pop3 accounts into my exchange account.