For each material in your 3ds Max scene, Datasmith creates a new Material Instance in your Unreal Engine Project. Each of these Material Assets is an instance of a Parent Material that Datasmith also creates in your Project, in the Materials/Master folder. Datasmith creates the Material graph for each of these Parent Materials with the goal of producing equivalent results in the Unreal Engine's physically based renderer to the results you see when rendering in 3ds Max.
Not every Instanced Material has its own Parent. Where possible, if two different Material Instances can share the same Material graph, Datasmith attempts to use a single Parent Material for both Material Instances.
Materials with a single shading model and a relatively simple graph should translate very well. For example, Datasmith translates the following 3ds Max material relatively smoothly into the Parent Material's graph:
If you open the Parent Material Assets, you'll notice that their graphs are often a little different from what you started with in 3ds Max, even for simple materials like the one shown above. This is a normal result of converting between shading models: Datasmith attempts to preserve the visual result as closely as possible, even if this sometimes means inserting extra connections or constants into the graph.
That said, 3ds Max supports multiple different shading models for materials, such as V-Ray, Corona, Arnold, Mental Ray, and more. Each shading model is a separate piece of software, with its own unique features that are not always consistent with one another. Sometimes, Datasmith is able to convert these features into similar features offered by the Unreal Engine.
However, Datasmith can't always handle the more esoteric features of these shading models. It may not be able to produce equivalent results in Unreal for materials with complex graphs that mix multiple output shaders together, such as this example:
In cases like these, you'll need to do some extra work to adjust or replace these Materials in the Unreal Editor after import.
Datasmith does not translate Autodesk Materials from 3ds Max. These are typically the materials that your scene uses if you imported a Revit scene into 3ds Max. You'll need to replace these materials either in 3ds Max before you export to Datasmith, or in the Unreal Editor after you import your scene.