To use a model in the CRYENGINE you need a material (.mtl) file to specify texture and shader settings. The material setup is partly done in the DCC package and partly done in Sandbox, with the adjustments in the Material Editor defining the look of the material.
The material setup in the DCC tools is only used to associate the polygons with a certain material and to assign a physics value to a polygon, if needed.
The connection between the asset and the material is the name of the material assigned to the object in the DCC tool and the name of the .mtl file loaded by the engine. CRYENGINE will automatically look for the .mtl file in the same folder as the asset, unless the material is absolutely pathed in the DCC tool.
To create the .mtl file press this button in your export dialog while your material is selected:
This will open the Material Editor in Sandbox (or start the Sandbox Editor if it's not yet running).
It will also open a file dialog which will allow you to name your material file and place it in an appropriate folder.
Two important considerations here are that the material should be created in the same folder as the .cgf model (unless the material is in which case it will always be read from that location) and the name of the material file should match the name in the DCC tool's Material editor.
It's very important that the name of the .mtl file is the same as the name of the material in 3ds Max. If this is not the case, Sandbox will not be able to find the .mtl file.
Maya handles materials in a slightly different way than 3ds Max Which is why you will notice the material grouping system required for setup of assets. If you have used Max you will noticed it is fairly similar to the multi-sub-material system used in Max.
Here are some things you should keep in mind when getting started.
In the Sandbox Editor you can open the Material Editor by pressing the M key, or by selecting it on the View Menu > Open View Pane > Material Editor.
With the Material Editor open, click on Add New Item in the toolbar to create a new Material.
This will open a file dialog where you can select the folder where you want to create the material in and the name of the material.
After clicking Save, your new material will be created with a set of default values and you can modify/save the file directly from the Material Editor.