How to Use Network Address Translation
You must determine one thing before you start your Internet sharing quest: the set of network Internet Protocol (IP) addresses that you’ll use. When talking about IP addresses, the ruling body that tracks IP addresses and where they’re used has broken all IP addresses into two parts:
Public IP addresses: Public IP addresses are used to communicate on the Internet, and only one device in the entire world can use a given public IP address at any given time.
Private IP addresses: Private addresses, on the other hand, are supposed to be used only on networks (such as your home LAN) and do not connect directly to the Internet. Lots of people can use the same private address on different networks because their networks never go public; that is, they never directly access the Internet, so their IP addresses never conflict.
Only one computer can use a specific private address at one time on your network; an IP address must be unique, or all Hades breaks loose.
Typically, you’ll use private addresses in the form of 192.168.x.x on your LAN; however, AirPort Extreme routers and Time Capsules use private addresses in the form of 10.0.x.x by default.
Network Address Translation (or NAT, for short) acts as a gatekeeper between your private IP addresses on your LAN and the public IP addresses on the Internet. When you connect to the Internet, your Internet service provider (ISP) gives you one — and usually only one — public IP address that can be used on the Internet.
Instead of one of your computers using that public IP address and depriving all the other computers on the LAN, the hardware or software that you use to share the Internet will take control of that public IP address.
Then, when any computer on your LAN tries to communicate on the Internet, your NAT software/hardware intercepts your communications and readdresses the traffic so that it appears to be coming from your allotted public IP address. (Think of a funnel that collects water from several different sources and then directs all the water into a single stream.)
When the website, File Transfer Protocol (FTP) server, or whatever strange Internet intelligence you’re using on the Internet replies, it replies to your NAT device. The NAT device remembers which private IP address it should go to on the LAN and sends the information to that computer.