Type A IP addresses use only the first octet for the network number and the other 3 for host numbers. Thus, there are can only be 126 network numbers because the first bit is used to designate that this is a type A address. Also, 00000000 and 01111111 are reserved for broadcast addresses so they are not assigned to specific networks. The old ARPANET used the number 10 for its network number.

Type B IP addresses assign the first two octets to the network portion, leaving the last two for the host. This increases the number of networks (to 2048 due to encoding schemes) but decreases the number of hosts on each network. However, it is unlikely that any single class B network would have the maximum number of hosts, which is about 65,534.

Type C assigns the first three octets to the network and the last octet to the host. The tradeoff is again, more network numbers but fewer hosts on each individual network.

Returning to type B again, most networks use the 3rd octet as the subnet number instead of a host number. Many medium sized institutions such as colleges have a number of LANs that are interconnected and all managed by the same governing body, so it makes sense to lump them together as one big network for the purposes and view of the outside world. Yet internally, they are WANs, with gateways between each of the component LANs. Thus, there can be 254 subnets, which is what these smaller component LANs are called, each having 254 hosts on it.