NAT - network address translation - permits all of the computers in your home to be on the Internet at the same time with only a single IP address on the Internet,.
Additionally, NAT naturally acts as a rudimentary firewall by masking the true IP address of our computer - thus helping to keep your systems safe from hackers.

NAT (Network Address Translation or Network Address Translator) is the translation of an Internet Protocol address (IP address) used within one network to a different IP address known within another network. One network is designated the inside network and the other is the outside. Typically, a company maps its local inside network addresses to one or more global outside IP addresses and unmaps the global IP addresses on incoming packets back into local IP addresses. This helps ensure security since each outgoing or incoming request must go through a translation process that also offers the opportunity to qualify or authenticate the request or match it to a previous request.
NAT also conserves on the number of global IP addresses that a company needs and it lets the company use a single IP address in its communication with the world.
NAT is included as part of a router and is often part of a corporate firewall.

Network administrators create a NAT table that does the global-to-local and local-to-global IP address mapping. NAT can also be used in conjunction with policy routing. NAT can be statically defined or it can be set up to dynamically translate from and to a pool of IP addresses. Cisco's version of NAT lets an administrator create tables that map:

• A local IP address to one global IP address statically
• A local IP address to any of a rotating pool of global IP addresses that a company may have
• A local IP address plus a particular TCP port to a global IP address or one in a pool of them
• A global IP address to any of a pool of local IP addresses on a round-robin basis

In the end, both extend the use of IPv4 IP addresses for a few more years before IPv6 is generally supported.

Using a device or piece of software that implements NAT allows an entire home network to share a single internet connection over a single IP address. A single cable mode, DSL modem, or even 56k modem could connect all the computers in your home or small office to the internet simultaneously. Additionally, NAT also keeps the network fairly secure from hackers.

NAT is built in to the most common Internet Connection Sharing technologies around. Microsoft has built their ICS around it and every Cable/DSL Broadband Router on the market accomplishes its job with NAT.

NAT acts as an interpreter between two networks. In the case of a home network, it sits between the internet and your home network. The internet is considered the public side and your home network is considered the private side.

When a computer in the private side request data from the public side (the internet), the NAT device will open a little conduit between your computer and the destination computer. When the public computer returns results from the request, it is passed back through the NAT device to the requesting computer.

Most NAT devices allow you to create maps between the internet and your computer network - this is called port forwarding.
Example: A request on port 80 from the Internet (looking for a web server on your IP address) would normally be turned away by a NAT device. A special mapping can be set up to send that request from the internet to a specific computer on your network. One of your LAN computers could host a web server on the Internet, and another computer (or the same one) could host an FTP server because the two services work on different ports. Only a few special programs on the internet will not work using this port forwarding system.

Note: A NAT environment has certain implications when being used to support Virtual Private Networks (VPN). The router will need to be able to support PPtP and IPSEC and port forwarding.