Please Read RFC 1918 – Address Allocation For Private Internets, specifically Part 3.
Quoting:
Private Address Space
The Internet Assigned Numbers Authority (IANA) has reserved the
following three blocks of the IP address space for private internets:
10.0.0.0 – 10.255.255.255 (10/8 prefix)
172.16.0.0 – 172.31.255.255 (172.16/12 prefix)
192.168.0.0 – 192.168.255.255 (192.168/16 prefix)
We will refer to the first block as “24-bit block”, the second as
“20-bit block”, and to the third as “16-bit” block. Note that (in
pre-CIDR notation) the first block is nothing but a single class A
network number, while the second block is a set of 16 contiguous
class B network numbers, and third block is a set of 256 contiguous
class C network numbers.
An enterprise that decides to use IP addresses out of the address
space defined in this document can do so without any coordination
with IANA or an Internet registry. The address space can thus be used by many > enterprises. Addresses within this private address space will only be unique within the enterprise, or the set of enterprises which choose to cooperate over this space so they may communicate with each other in their own private internet.
As before, any enterprise that needs globally unique address space is required to obtain such addresses from an Internet registry. An enterprise that requests IP addresses for its external connectivity
will never be assigned addresses from the blocks defined above.
In order to use private address space, an enterprise needs to
determine which hosts do not need to have network layer connectivity
outside the enterprise in the foreseeable future and thus could be
classified as private. Such hosts will use the private address space
defined above. Private hosts can communicate with all other hosts
inside the enterprise, both public and private. However, they cannot
have IP connectivity to any host outside of the enterprise. While not having external (outside of the enterprise) IP connectivity private
hosts can still have access to external services via mediating
gateways (e.g., application layer gateways).
All other hosts will be public and will use globally unique address space assigned by an Internet Registry. Public hosts can communicate
with other hosts inside the enterprise both public and private and
can have IP connectivity to public hosts outside the enterprise.
Public hosts do not have connectivity to private hosts of other
enterprises.
Explanation
Your Internet Connection is divided logically into two parts:
The LAN – Local Area Network
The WAN – Wide Area Network
The LAN is managed by your router, and the WAN is managed by your ISP, who is a LAN themselves connected to a WAN, and ALL ISP’s are like a railroad or highway. The end of every ISP’s highway ends by merging onto a backbone. A backbone is the logical section of the Internet where traffic travels at a high rate of throughput.
How This all Works – NAT in Layman’s Terms
According to RFC 1631 – Network Address Translation, NAT was created to bridge the GAP between a LAN and a WAN. Imagine the following:
You and I are two Medieval Kings in Neighboring Castles, separated by a Cobblestone Road. We’re nice Kings, but we follow strict security standards because the other kingdoms don’t like us. Each of us has a knight standing at our drawbridge. If I want to talk to you I give my knight my information, and he travels down the road to your knight. My knight gives your knight my information, and your knight carries it to you.
Given that story, my castle is my LAN, and your castle is Your LAN. As kings, we each have a Private IP Address given to us by our Routers(Knights). In order for me to talk to you, I must tell my knight I need him to travel on the highway. Our knights are smart. They take the Private IP Address and stick it in one of their pockets, and exchange it with the Public IP Address in their other Pocket. While traveling on the road(Internet), the knights only carry the Public IP Address. When my knight returns from your castle, he switches pockets again, and exchanges the Public IP Address for the private one that he hid in his pocket, and gives me the information I requested from you without telling me the Public IP Address.
The Exchanging of Private IP’s for Public Ones in the knight’s pockets, and vice-versa is NAT. The knight keeping track of the IP Addresses he gave the kings is DHCP. When we add townsfolk, each person in town connected to the castle is given an IP address by the knight. When the peasants need information from other peasants in the other kingdom the knight must travel the cobblestone road for them too. When 2 peasants in the same castle need to exchange information, they still go to the knight, but the knight doesn’t travel on the road, he travels within the castle as he knows the Private IP Address of every peasant.
In answer to your question above, WhatIsMyIP is giving you the IP Address, that the knight uses when he travels on the road between my castle and yours(WAN). As such, I can use that information to find out which “castle” you live in.
written by: E Carter Young
Thank you very much for an elaborate answer!