The "Custom Reply Email" is where admin will write in an email address to be the customers' From and Reply address when the email is sent. This overwrites the profile's From and Reply email address.
If they do not have masking this is called a spoof and that email address HAS to exist as the replies will go there. Additionally the customer will not get full reporting on the send.
This is usually used when a customer will not pay for or cannot get masking.
If they do have masking the address does not have to exist, in fact it should not exist.
This way the emails will go through us as usual. As it is masked what ever the address is all of the reporting will work. It is better to keep with the same sub domain though as this way the domain check will match the header records!