After study of above answers, this is what caused me to understand:
Masquerading allows an entire network of internal IP addresses to operate through one external IP address and masquerading allows conversion from one protocol to another (wired/wireless).
When the MASQUERADE chain sends a datagram from a computer it...
- Takes note of the type of datagram it is, "TCP," "UDP," "ICMP," etc. Note: An unknown might not work correctly through MASQUERADE.
- Modifies the datagram so that it looks like it was generated by the router machine itself (the one external address).
- Remembers that it has done so, recording the local source and external destination IPs.
- Transmits the datagram onto the Internet with the single external IP address.
Note: When the destination host receives this datagram, it believes the datagram has come from the one routing host and sends any reply datagrams back to that address.
When the Linux MASQUERADE chain receives a datagram from its Internet connection,
- It looks in its table of established masqueraded connections to see if this datagram actually belongs to a computer on the LAN.
- If it does, it reverses the modification it did on the forward path and transmits the datagram to the LAN computer.
The MASQUERADE chain is useful for internally creating and entire private IP address space, and for forwarding packets that would otherwise be incompatible.
The Ethernet, or wired protocol, assumes that the packet comes from the source and reports itself. The Wifi, or wireless protocol, assumes that the packet is being repeated and reports itself and the original source.
For this reason, Wifi and Ethernet cannot be directly bridged because they are incompatible. Masquerading causes the packets to be rebuilt and will thereby handle conversion between wired and wireless standards. Note: There are ways to cause your computer to accept the incompatibility internally and bridge, but without a full masquerade, the bridge spoof will be viewed externally as a security risk and those requests will be rejected.