Badmail Directory
If a message is undeliverable, it is returned to the sender with a non-delivery report (NDR). You can designate that copies of the message and the NDR are sent to a directory of your choice, known as the Badmail directory.

All NDRs go through the same delivery processes as other messages, including attempts to resend the message. If the NDR has reached the retry limit and cannot be delivered to the sender, a copy of the message is placed in the Badmail directory. Messages placed in the Badmail directory cannot be delivered or returned.

Check the Badmail directory regularly and reconcile the messages, because a full directory may affect Microsoft SMTP Service performance.

The default Badmail directory is C:\Inetpub\Mailroot\Badmail. To designate a directory for undeliverable mail and NDRs, type the full path name in the Badmail Directory box.