One can have two types of IP addresses – static and dynamic. A static is an unchanging IP address, but most computers use dynamic IP addresses. This is because there are not enough static IP addresses in the world to handle all the demand. Thus, there was a need to provide computers the ability to “share” IP addresses. A dynamic IP address is assigned by a DHCP server. The DHCP server has a pool of IP addresses which it can hand out. It gives IP addresses to devices connected to the network as they are attached to the network. These IP addresses are only giving temporarily (thus the terminology dynamic), and this temporary period is known as a lease. After a period of time the device must renew its lease – and perhaps get a different IP address. The DHCP server ensures that no two computers have the same IP address, thus preventing conflicting communications from occurring.
Windows has a built-in DHCP server which is more than adequate for most uses. One can assign equipment static IP addresses but this is usually an unnecessary hassle for most small networks, unless the server needs to be accessible to the external world (e.g. the internet rather than the company intranet). There are also oftentimes DHCP servers built into switches, firewalls, and routers.