I just got my Draytek 2677. On my old ISP router, it would provide client PCs on the lan with its own address to act as DNS server.

I notice the draytek appears to be giving clients the actual IPs of the configured external DNS servers. Is it possible to have local clients go to the draytek router for DNS? I saw the section on DNS forwarding, but this seemed to be to setup specific domains?

So first off, it's highly unlikely your old router was acting as a name server. Instead it was acting as a DNS forwarder to an upstream name server (like Google DNS, Cloudflare etc).

Your Draytek will behave similar with some more advanced features. One way to achieve what you're asking for is you change your DHCP scope to hand out the IP of your Draytek as the name servers for your clients to use. Your Draytek will then forward on requests from clients to the Name servers your ISP has given it. There are other ways to trigger different behaviours like forcing the Router itself to use upstream name servers you want to use by the Router itself for example. Searching the forum will reveal more ways.