How does docker-compose in Supabase work?

Hey, I was just looking into the architecture of Supabase but don't understand the docker-compose and kong configuration file completely. In these files, containers are targeted as a 'hostname', it seems. For example: POSTGREST_URL: http://rest:3000 in docker-compose.yml.

I'm unfamilar with this strategy in Docker. Can someone point me to where or how these domainnames are translated to their respective container IP (if that is what happens)? Is there some local DNS-server running that I am not aware of?

Very curious, thanks!
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