The system is the default, choose System if there are multiple domains using identicals policy.
If you want to avoid repeat identical policies, it's more practical the concept of associated domains.
But if you want granular control for domain, you could clone one profile from the provided system ones (antispam, antivirus, etc), customize it for specific domain needs, and apply it to the Domain. Same idea applies for incoming and outgoing recipient policies.
As you know, policies will apply if match occurs in up-to-down order.
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