This will allow hosts to connect directly to the server. There are several ways in which a client may connect to the server. Broadcast a request over the network which is taken up by the first server to respond. Make a indirect query where the client connects to a specific server which in turn provides it with a list of servers that offer X logins. The client selects the server to connect to from the list and then connects to that server.
Direct queries are fine over a small network.
Next edit the Xservers file. This line defines the virtual terminal that xdm will start on by default. Comment this line out if you need the services of xdm but do not want it to take up a terminal at startup. If xdm is running then restart it with killall -HUP xdm. Now for the client.