What is Dynamic Host Configuration Protocol (DHCP)
Dynamic Host Configuration Protocol (DHCP) allows clients and servers on your network to automatically obtain an IP address from a DHCP server. When dealing with hundreds or even thousands of computers, DHCP can save you quite a bit of time, considering the alternative of having to manually configure static IP addresses on network interfaces.

In Ethernet networking, hardware components such as network adapters are identified by their 48-bit Media Access Control (MAC) address, a typical 48-bit MAC address would be expressed as 00-03-2F-01-D0-1B. MAC addresses are embedded on network cards by their manufacturer, and thus each adapter has its own unique MAC address. When a computer boots up and is configured to obtain an IP address automatically, it broadcasts a DHCP Discover packet. By broadcasting a DHCP Discover, the system is asking the network, "Are there any DHCP servers out there?" The DHCP server or servers that receive the request respond to the MAC address of the requesting computer and offer an IP address. This part of the process is known as DHCP Offer. The client then sends a DHCP Request packet back to the first DHCP server from which it received an offer, requesting use of the offered IP address. Finally, the DHCP server sends the client a DHCP Acknowledge packet, signifying that the IP address has been leased to the client.

DHCP servers only lease IP addresses to DHCP clients. So once a client gets an IP address from a DHCP server, it does not automatically own the IP address for life. For example, if a DHCP server was configured to lease IP addresses for two weeks and the DHCP client was not connected to the network after receiving its lease for the next two weeks, the DHCP server would remove the client's lease and could in turn hand out the IP address to another computer. As long as a client is connected to the network, at the 50% point of its DHCP lease duration it will automatically try to contact the DHCP server and renew its lease.