Do programs understand/take into consideration that my school does not have a dermatology residency program?
Programs generally give priority to their own students. However, most programs are very aware of the challenges faced by applicants who come from medical schools without a Dermatology residency program. Many consider this factor when reviewing applications.
General advice for applicants without a home dermatology residency program:
Try to arrange 1-2 away rotations in July/August/September especially at schools in your region and/or where previous graduates have matched. Also consider if a major city has multiple dermatology programs. You could network with residents from multiple programs during monthly Dermatology Society meeting.
During the externship, try to pursue scholastic activity with faculty. It is very hard to accomplish significant research during a 1-2 month rotation. Working on a case report may fit better into this timeframe while still demonstrating the ability to synthesize the literature and write well. Working with a good mentor, who can write a strong LOR when you are done, is also important, but not easy to assess prospectively.
If other students from your school have matched in dermatology, contact them and find out where they matched. Ask them for advice. If one of your predecessors made a favorable impression somewhere, then apply for an away rotation at that program.