Normally, when a TCP/IP application wants to send information, that information travels down the protocol layers to IP where it is encapsulated in an IP datagram. That datagram then passes down to the data link layer of the device's physical network for transmission to the next hop, on the way to the IP destination.
However, one special range of addresses is set aside for loopback functionality. This is the range 127.0.0.0 to 127.255.255.255. IP datagrams sent by a host to a 127.x.x.x loopback address are not passed down to the data link layer for transmission. Instead, they “loop back” to the source device at the IP level. In essence, this represents a “short-circuiting” of the normal protocol stack; data is sent by a device's layer three IP implementation and then immediately received by it.
The purpose of the loopback range is testing of the TCP/IP protocol implementation on a host. Since the lower layers are short-circuited, sending to a loopback address allows the higher layers (IP and above) to be effectively tested without the chance of problems at the lower layers manifesting themselves. 127.0.0.1 is the address most commonly used for testing purposes.
127.*.*.* never accesses the Internet.
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