Ever notice the strange 169.254.x.x IP address your browser displays when you cannot connect to the Internet.
Beginning with Windows 98 (but not NT), APIPA became available for small non-routed LANs (under 25 clients) - although known by various other names (Auto-IP configuration, AutoNet, IP-Auto configuration). With APIPA, DHCP clients self-configure an IP address and subnet mask if a DHCP server is not available.
By default, all clients are configured to use DHCP. When a client boots, it queries the DHCP server for an IP address, subnet mask and possibly other options. If it cannot find a server, the client uses APIPA to get a random IP address in the range 169.254.x.x reserved by Microsoft. It also gives itself a Class B subnet mask of 255.255.0.0. These are used until a DHCP server becomes available.
When invoking APIPA, a client tests for address duplication by sending a gratuitous ARP. If no one answers, it keeps the address. If another client is already using the address, the new client tries a different address. A client can make this attempt up to 10 times. If using APIPA, a client checks for a DHCP server every five minutes. If one is found, the client updates its information from the server.
If a client has a previous lease from a server, it tries to renew the lease at boot time and, if unexpired, the server renews it. If the client cannot contact the server and the lease is unexpired, it tries to ping the default gateway assigned in the lease. If successful, the client continues to use the lease. If the ping fails, the client uses APIPA.
In some cases, disabling APIPA may be desired (if a server is available, APIPA can mask connectivity problems since the PC assigns itself an address instead of generating an error). APIPA can be disabled by modifying the client Registry. Extreme care should be exercised when making Registry changes.
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