The word subnetwork (subnet for short) has two related meanings. In the older and more general meaning, it meant one physical network of an internetwork. In the Internet Protocol (IP), a subnetwork (usually known as a subnet) is a division of a classful network. The rest of this article is about the second meaning.
Subnetting an IP network allows you to break down what appears (logically) to be a single large network into smaller ones. It was originally introduced before the introduction of classful network numbers in IPv4, to allow a single site to have a number of local area networks. Even after the introduction of classful network numbers, it continued to be useful, as it reduced the number of entries in the Internet-wide routing table (by hiding information about all the individual subnets inside a site). As a side benefit, it also resulted in reduced network overhead, by dividing the parts which receive IP broadcasts.
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A subnet is a way to increase the number of network addresses within a single IP address. Because there are a limited number of IP addresses available, this allows corporations (as well as individuals) to have multiple internal addresses share a single external IP address. Most internal subnets will be 255.255.255.0 with an IP address similar to 192.168.1.2 . A router will assign internal addresses along with a subnet through a process called DHCP, while at the same time having a single IP address for itself linking it to the rest of the Internet.
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