A DHCP server ensures that uniquely-generated, dynamically allocated IP assignments are made to connecting clients, along with whatever preferential server settings may apply to the client connection. However, it can also ensure that the same IP is given only to a specific machine every single time it connects. DHCP is successor to an older Boot Protocol (BOOTP), which achieved a very similar goal.
DHCP automates not only the assignment of IP addresses but also subnet masks, default gateways, and other lease-related parameters. On boot-up, a connecting client will issue a request to the network for its personal address assignment to the DHCP application service. In turn, the service applies a set of rules that govern the assignment and return the requested information back to the client.
DHCP provides three modes for allocating addresses:
• Dynamic: Clients are provided an address assignment lease that expires after some specified duration of time. Reconnecting client computers may or may not receive the same IP address, and no real concern is given to consistency.
• Automatic: Also known as DHCP Reservation, an automatic assignment is one where a given address is permanently assigned to a particular client. The DHCP server selects from a range specified by the administrator.
• Manual: Client-based address selection and DHCP protocol message response inform the server of the new address allocation. The DHCP server performs the allocation based on a table with interface hardware or MAC addresses, where administrators manually specify IP and MAC pairs for connecting clients.
Network administrators not only reduce the amount of repetitive and potentially unnecessary effort associated with manual address assignments, but also eliminate the potential for configuration mistakes when configuring multiple clients.
Windows Server 2008 enhancements to DHCP include IPv6 support (DHCPv6) and Network Access Protection (NAP) enforcement, which requires a connecting DHCP client to prove its system health status before receiving an address assignment.
Source of Information : For Dummies Windows Server 2008 For Dummies