Log into the SQL Server with an account that has Administrator privileges on the server.
Log into the SQL Server with the NT Account that the server is running as. (If the SQL Server is running under the system account, you will need to change it so that it is running under a Domain Account. This account will need to be granted the ability to log on as a service.)
Configure an outlook profile (you will need a mailbox on your exchange server for the SQL Server to use).
Open Enterprise Manager, and navigate to the server that you are configuring.
Right click on the server and select properties.
Click on the “Server Settings” tab.
In the SQL Mail section click change, and select the profile that you just configured from the drop down menu. (If it is not listed, or the drop down list is empty, you will need to stop and restart the SQL Service).
Once you have the Outlook profile selected, click ok. Then click ok to close the SQL Server Properties.
To configure SQL Agent, click the plus next to the server, and the plus next to Management.
Right click on SQL Server Agent, and click properties.
On the general tab, in the Mail Session section, select the Outlook profile in the dropdown. Click Test then OK. If prompted to restart the Agent, click yes.
Your SQL Server is now configured to send mail.
(This is from an FAQ I wrote here.)