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The Internet Protocol (IP) found at OSI Layer 3 is responsible for end-to-end delivery of data between computers in an IP network (the Internet). To find a path between two computers in a large network such as the Internet, computers must be uniquely identified. To do that, the Internet Protocol defines IP Addresses, which are unique 32 bit sequences of one and zeros.
For example, 11000000101010000000000100000001 is a valid IP address. For the ease of use, IP addresses are represented in a form called the dotted decimal format. The 32 bits of the IP address are grouped in 4 bytes delimited by dots and transformed into the decimal form because it is simpler to use decimal number instead long sequences of ones and zeros.

The Reverse Address Resolution Protocol (RARP) can be also used to assign IP addresses. RARP associates a known MAC address to an IP address. A RARP server must be configured with the MAC addresses of the stations using RARP and IP addresses for those stations.

Obtaining an IP Address

An IP address can be statically configured on a device, by assigning an interface a fixed IP address in the dotted decimal format. This way, that host has a static IP address, and will use it until the user changes it.
Servers, routers, and network printers should be assigned static IP addresses. Also, if a network is small, statically assigning IP addresses doesn't make it difficult for the administrator to keep track of computers.
A computer connecting to the Internet by using a modem usually receives an IP address from the access server that it dials into. The Point to Point Protocol (PPP) is used in such cases, and IPCP (Internet Protocol Control Protocol) is responsible for IP address negotiation and can also provide DNS and WINS addresses.
The most popular protocol for dynamic IP address configuration these days is DHCP (Dynamic Host Configuration Protocol). Configuring a DHCP involves a few simple tasks like specifying a range of IP addresses that can be assigned to clients, DNS servers, and the default gateway for the clients. This is very simple to set up when administering a large LAN, because you don't have to set up static IP addresses on each computer. The DHCP server does all the work.
The predecessor of DHCP is the Bootstrap Protocol (BOOTP). BOOTP, however, was not made to provide IP addresses dynamically; so, for every host in the network, an entry containing the IP address and MAC address of that host is added in the configuration file. You still have to provide computers static IP addresses, but, using BOOTP, instead of setting those up manually on the computers, you set them in a file on the server.
The Reverse Address Resolution Protocol (RARP) can be also used to assign IP addresses. RARP associates a known MAC address to an IP address. A RARP server must be configured with the MAC addresses of the stations using RARP and IP addresses for those stations.

IP Classes

An IP address has two parts: one that specifies the network that it is in, and one that uniquely identifies it in that network. The first part is called the network part of the IP address, and the second part is called the host part of the IP address.
To identify the two parts of an IP address, devices use a network mask. Network masks have the same format as IP addresses (32 bits) and have the bits in the network part of the IP address set to 1 and the bits in the host part set to 0.
For example, if we find computers from 192.168.1.0 to 192.168.1.255 on a network, it means that all computers have the network part 192.168.1, and the rest will be the host part. The network mask in this case will be 11111111111111111111111100000000 in binary, and 255.255.255.0 in dotted decimal form.
To accommodate different sized networks, IP addresses are divided in groups called classes, identified by the leftmost bit or sequence of bits. The classes are called A, B, C, D, and E, and this process is called classful addressing.

Class A was designed to accommodate very large networks, with more than 16 million hosts. The first bit in a class A IP address must be 0; so the minimum value of the first byte is 0 and the maximum is 127. However, 0 and 127 are reserved; so valid class A IP addresses start with numbers between 1 and 126. The network 127.0.0.0 is used for loopback testing, and it is used by devices to communicate with themselves using TCP/IP. A loopback interface is a virtual interface that emulates the TCP/IP network access layer or OSI Layers 1 and 2.
Class B addresses accommodate medium to large networks. The first two bits in the first byte of the IP address must be 10; so the first byte is between 128 and 191 in decimal. A valid class B IP address starts with a number between 128 and 191.
Class C addresses accommodate small networks with a maximum of 254 hosts. The first three bits in the first byte of a class C IP address must be 110; so the first byte must have its decimal value between 192 and 223. A valid class C IP address starts with a number between 192 and 223.
Class D addresses were created to enable multicasting in IP networks. Multicasting is a process in which you define a number of IP addresses from a network that will receive a data stream from a streaming source. Multicasting is used mainly for broadcasting video and audio over an IP network. A streaming device such as a video server can multicast a data stream that will be received by some computers, not necessarily all (like broadcast) and not individually (like multicast). Class D IP addresses must have the first four bits in the first byte 1110; so a valid class D IP address may start with a value between 224 and 239 in the dotted decimal format.
Class E addresses have not been released for the public use in the Internet. They have been defined and are reserved by the Internet Engineering Task Force (IETF) for its own research. Class E IP addresses must have the first four bits 1111; so a class E IP address can start with a value between 240 and 255.

Reserved IP Addresses

An IP network has two IP addresses that can't be used by any device connected to the network. These are the first and the last IP addresses in that network.
The Network Address: The first IP in the network. It identifies the network itself and is the most relevant IP address for devices outside the network. For example, for the 192.168.1.xxx class C, the first IP address is 192.168.1.0, which is the network address for that class C. Devices outside this network must first "find" the network 192.168.1.0, meaning that IP packets must be routed towards the 192.168.1.0 network, and only after that is the host part of the IP address relevant. The first IP address in the network always has all the bits in the host part of the IP address 0.
The Broadcast Address: The last IP in the network. It is used to broadcast packets to all devices in that network. For example, for the 192.168.1.xxx class C, the broadcast address is 192.168.1.255. A host that sends an IP packet with the destination IP address 192.168.1.255 is sending a broadcast to the network; so all devices receive that IP packet. Broadcasts are used to make
the network aware of some services on the broadcasting device or to request a service from a device without knowing its IP address. Broadcast addresses always have the bits in the host part 1.