I've never done it, but I'm pretty sure it's possible. Have you checked out this cookbook?
So I should have followed up with this sooner...I ended up just calling support and getting their feedback:
"You can create local DNS servers for your network. Depending on your requirements, you can either manually maintain your entries (master DNS server), or use it to refer to an outside source (slave DNS server)." ...Answered the question but I had to hear it from them.
Basically, if you want to enter in ALL your DNS entries manually then it can be your local DNS server which is no good if you have DHCP clients in a subnet or vlan with DHCP turned on. However, because the FortiGate is still considered a FIREWALL (though it is basically a router) and thus does not have an internal auto DNS population database functionality. Therefore, you will still need an Windows / Linux DNS server.
Honestly, I think this is a huge off-set and a complete miss on FN's part. With so much power and dedicated resources combined with a superior GUI/CLI, I cannot understand why the drew the line at this having an internal DNS server that has the capability to create A records on its own. Even the small fries like SonicWally, EdgeRouter (Ubiquiti), Netgear and Linksys can accomplish this.
Anyways, I am considering the subject closed and sadly resolved.