Private IP addresses, also often called RFC1918 addresses, are the addresses set aside according to IETF RFC 1918 for private use by companies and organizations in their private network. Private IP Addresses cannot be used to connect directly to the Internet because they are non-routable. On the other hand, the public IP addresses are typically owned, either by very large corporations or by ISPs for public to use for routing across any public network such as the Internet. When a user contracts for service from an ISP, the user is allocated some number of legitimate IP Addresses out of that ISPs pool of public IP addresses.

When private IP addresses are used, a Network Address Translation (NAT) device is required between the companys private network and the ISP to facilitate the mapping and translation of the public and private IP addresses for accurate routing.

The use of private IP addresses provides the following advantages:

1. Increased security (since private IP addresses are not routable across the Internet).
2. Conserve the world-wide pool of IP Addresses.
3. Users do not have to register or pay for these IP Addresses in any way.
4. When you connect to the Internet via a Firewall and NAT, you will not block any address ranges from yourself.

The following caution must be taken when using the private IP addresses:

1. When two or more organizations merge, make sure to avoid same private IP addresses in the merged network.
2. Some applications may not work with NAT.
3. Anything using NBT (UDP 138), i.e. NT Networking cannot communicate behind a Firewall with NAT.
4. Some applications needing encryption and key exchange (specifically any application that embeds IPs in the datastream) may not work with NAT.
5. It may require more work to plan and configure private IP addresses.

Private IP Address Ranges are defined in the IETF RFC1918 as follows:

Related Terms: Network Address Translation, RFC 1918

Reference Links: http://www.javvin.com/protocol/rfc1918.pdf : Address Allocation for Private Internets.