As we know, in order for two networked devices to communicate, it is absolutely necessary that they have an IP address assigned on their Network Interface Card (NIC). A network administrator can either assign manually a static IP address for each device, or have the address assigned dynamically. Now, imagine a network with thousands of network devices (PCs, Laptops, Network Printers etc). It would have been a daunting task for the Admin to manually configure an IP address for each device and keep track of them all. Fortunately, DHCP provides a way to dynamically assign IP addresses from a DHCP Server to DHCP clients. The diagram below shows a simple DHCP network.
 

Here is a plain English DHCP “conversation” between the DHCP clients and the server:

DHCP Client: I don’t have an IP address assigned. Is there a DHCP server on the LAN Network ?
DHCP Server: Yes, Here I am.
DHCP Client: I need an IP address. Can you provide me one, together with the IP addresses for my Gateway and DNS servers?
DHCP Server: Sure, you can take IP address 10.1.1.1 for 3600 seconds. Your Gateway address is 10.1.1.254 and your DNS address is 10.1.1.200.
DHCP Client: Thanks