To setup email configuration in SAP, you must first create an SMTP port in SMICM. Then in RZ10, maintain parameter values like icm/server/port_no=smtp, port=25, timeout=180, extbind=1. Next, set the default domain in SCOT and create a node with details. After defining a background job, emails can be sent using SBWP and status checked in SOST. This allows automated reports to be generated and distributed internally in a secure manner.