The IETF (Internet Engineering Task Force) and other international bodies had to take measures to conserve IP addresses. Network Address Translation (NAT) was proposed as a temporary measure to alleviate this problem. Other long-term solutions were also proposed, such as the introduction of a new IP version, namely IPv6 with 128-bit addresses.
Even if NAT was suggested as a temporary solution, it has been adopted by all network hardware manufacturers, and it is considered a very useful technology, not only for IP address conservation, but also for many other purposes including security.
The IP address header contains a source and a destination IP address, in order for the IP packet to be properly routed within the IP network. A device which implements Network Address Translation can change the source address in the IP header and replace it with a different value. For example, a border router connecting an Internal LAN to the Internet, can replace all source addresses of the packets received in its Internal interface with the IP address of its External interface (the one facing the Internet). Doing this, we achieve two things: First we represent many IP addresses with just one address (many-to-one translation), thus achieving IP conservation, and Second we hide the IP addresses of our Internal Network behind one single address (the one facing the internet on the router), thus achieving better security.
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