Network / Port Address Translation

Network Address Translation
What is Network Address Translation (NAT) ? It is an Internet standard that enables Local-Area Networks (LAN) to use a set of IP addresses for internal traffic and another set of addresses for the external traffic. NAT serves three purposes: Providing a type of firewall by hiding internal IP addresses, enabling a company to be able to use more internal IP addresses and allow a company to combine many ISDN connections into a single Internet connection.

Since there are many users using the Internet, IP addresses have to be used and the number of available IP Addresses is not enough. One solution is to redesign the address format to allow more possible addresses, however it will take years to implement this as it needs modification and the whole infrastructure of the Internet. NAT allows single devices like routers to act as an agent between the public network and the local network, which also means only a single, unique IP address is needed to represent a whole group of computers.

Port Address Translation
What is Port Address Translation (PAT) ? It is an extension to the NAT that permits many different devices on a LAN to be mapped to a single public IP Address. The purpose of the PAT is to conserve IP Addresses. PAT is used in most home networks.

In one scenario, the Internet Service Provider (ISP) assigns one IP Address to a home network's router. When Computer 1 logs on the internet, the router would assign a port number to the client, which is appended to the Internal IP Address.It gives Computer 1 a unique address. When Computer 2 logs on the internet at the same moment, the router will know which computer to send specific packets to as each computer has their own unique Internal Address.


References:
http://www.webopedia.com/TERM/N/NAT.html
http://www.howstuffworks.com/nat.htm
http://searchnetworking.techtarget.com/definition/Port-Address-Translation-PAT