Please tell me about specifying DNS forwarding to Cato SASE.

As for the forward destination, 10.254.254.1 is fine as you pointed out.
For information about DNS, please refer to the following knowledge base.

https://support.catonetworks.com/hc/en-us/articles/4413273466129-Configuring-DNS-Settings

Basically you need to perform the following name resolution:
vpn.catonetworks.net to 10.254.254.5
tunnel-api.catonetworks.com to 10.254.254.3

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