Network Time Server on a closed Network?

Having time synchronized across all your systems is a good idea. All systems will drift over time and even a difference of just a minute or two can cause confusion.

Mac OS X Server includes a time server component, and you can sync all your clients to that - at least that way everyone on the same network will have the same time, even if that differs from the rest of the world.

If that server can get a time sync from an external server then it can propagate that time to clients.

You can also install your own time server that syncs from GPS or radio time signals and have your clients sync with that, although the cost of such systems is overkill for most people.

I have one server in my environment. So when I'm configuring DNS on the xserver, and it asks me for the NTP server, I point the IP to the same IP i assigned to the xserver?

If this server has no external connectivity then, yes, set it to the server's own IP address. If it has external connectivity, set it to a valid name server.

Also, how do i enable this service on the xserver? is it on by default?

No, it's off by default. Use Server Admin to enable it.

The following is potentially massive overkill for what you want (and you can certainly use your Xserve as your primary source... But there are other (and simple) add-on devices around, too...

First, how closed here is your "closed network"? Some folks have closed networks that have no Internet connection, and some have closed networks that are shielded against all external signals.

If you're in the former group here, there are readily available GPS- and WWV-based NTP server boxes available; where a dedicated device collects an external time-base and makes it available for LAN use.

A Google search for /ntp server gps/ or for /ntp server wwv/ will turn up various options. The former medium (GPS) tends to be more common, given WWV reception is both regional and potentially spotty.

If you're in the latter group, there are folks that offer cesium fountain clocks and other such options.