I have a domain server which is running fine, I will term this server as CompanyDomain (SBS Server). I have a second server which is part of the same domain and runs IIS for internal Websites. I will term this server as CompanyWebserver (WS 2012 R2).

I create a site on CompanyWebserver in IIS and add a binding to it (binding is testsite.companywebserver.companydomain.local)

I try to navigate to http://testsite.companywebserver.companydomain.local but it cant find the site.

I think i need to add a DNS setting but wondered if someone could guide me where and what i need to do?

You need to test going to the site using the full url and the ip address from both the DC and the webserver itself. Because you need to verify that the website is reachable to begin with, why testing IP is needed. Then when you can verify you can view the site from a computer other than the webserver, you can look into DNS.

If DNS is a role on your Domain Controller, you just need to add an A record for the server.

If you use some other kind of DNS, you should post what it is.