When creating a Service Mesh, the HCX manager tries to connect to ESXi's Management vmk where the Fleet appliances will be deployed on.
Before that, HCX manager retrieves the destination information from vCenter.
The destination information propagated from vCenter includes the IP address of ESXi's Management vmk that is resolved by DNS server from vCenter.
If HCX manager cannot connect to this IP address, Service Mesh creation will fail with the above error.