Introduction to Internet Protocol (IP) v4

The Internet Protocol Suite was originally developed by the Defense Advanced Research Projects Agency (DARPA) and then included with the Berkeley Software Distribution of Unix. IP version 4 is the most commonly used version, however there is a slow migration around the work to IP version 6. Internet Protocol works by breaking up data into datagrams for transfer across almost any Layer 2 medium (LAN, MAN or WAN). The datagrams are then reassembled at the destination. A number of RFCs have been written that give an overview of IP e.g.

RFC 791 - IPv4

RFC 894 - Encapsulating IPv4 within Ethernet

RFC 1812 - IPv4 routers

Routers are the devices that have the intelligence to examine the IP addresses within the datagrams to determine where next to send the received datagram. Because routers are able to connect to different media such as Frame Relay, ATM, Ethernet etc. they have the ability to strip off the link layer header and place the datagrams in other link layer headers. This is done on a hop-by-hop basis and the decision process relies on the routing tables that each router builds for itself. MPLS technology operates differently in that the path of the datagram is determined right at the outset rather than a haphazard hop-by-hop mechanism.

A device on the local network will send a datagram to a remote IP destination by using the local MAC layer addressing as follows:

The sender creates the IP datagram with itself as the source IP address and the receiver's IP address as the destination.
The layer 2 part of the stack uses its own MAC address on the local LAN as the source MAC address and directs the packet to the default gateway MAC address (known through a previous ARP operation) i.e. the router's local network interface.
The router strips off the layer 2 header and decides out of which interface the datagram needs to go based on the destination IP address and its own routing information.
The router encapsulates the datagram with the appropriate layer 2 header and sends the datagram out.
A reply from the remote host arrives at the local router and the router strips off the layer 2 header and encapsulates the reply datagram with the local layer 2 header using its own local network interface MAC address as the source MAC address.
The original sender receives this reply and observes that the datagram is a response from the remote host.

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