Network address translation (NAT) is an address mapping technique that involves rewriting the IP addresses (and perhaps even port addresses, in which case the technique is called PAT) of all the packets that go into and come out of a network. (Packets are formatted blocks of information carried by a computer network.)
IP addresses used by hosts in a local network are private, meaning they are not visible on the Internet. Public IP addresses, on the other hand, are those addresses which are visible or accessible on the Internet. NAT is generally implemented in firewalls at the interface or edge of a network and enables all hosts inside the network to use a single public IP address on the Internet. Because public IP addresses are a limited resource, NAT helps reduce the number required.
More importantly from a network security viewpoint, the use of NAT helps to build secure networks because it hides the internal structure of the network from users outside the network.
Image: NAT Diagram
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