DHCP is a standards-based protocol that was originally defined by the Internet Engineering Task Force (IETF) and based on the Bootstrap Protocol (BOOTP). It is defined in Requests for Comments (RFCs) 3396 and 3442 and has been implemented on a variety of operating systems including UNIX and Windows. Because DHCP is a client/server protocol, there is a server component and a client component necessary to implement the protocol on a network. To make it easier to deploy DHCP in the enterprise, all server editions of Windows Server 2003 include the DHCP Server service, which can be installed to support DHCP, and all versions of the Windows operating system from Windows 98 to Windows Server 2003 automatically install the DHCP Client service as part of TCP/IP.

Because of the client/server model, a computer that gets its configuration from DHCP is referred to as a DHCP client, and the computer that provides the DHCP services to the client is referred to as a DHCP server. It's the job of the DHCP server to maintain a database about the IP addresses that are available and the related configuration information. When an IP address is given out to a client, the client is said to have a lease on the IP address. The term "lease" is used because the assignment generally is not permanent. The DHCP server sets the duration of the lease when the lease is granted and can also change it later as necessary, such as when the lease is renewed.

DHCP also provides a way to assign a lease on an address permanently. To do this, you can create a reservation by specifying the IP address to reserve and the Media Access Control (MAC) address of the computer that will hold the IP address. The reservation thereafter ensures the client computer with the specified MAC address always gets the designated IP address.

Microsoft recommends that a single DHCP server service no more than 10,000 clients. You define a set of IP addresses that can be assigned to clients using a scope. A scope is a set of IP addresses and related configuration options. The IP addresses set in a scope are continuous and are associated with a specific subnet mask. To define a subset of IP addresses within a scope that should not be used, you can specify an exclusion. An exclusion defines a range of IP addresses that you can exclude so that it isn't assigned to client computers.

Windows Server 2003 supports integration of DHCP with dynamic DNS. When configured, this ensures the client's DNS record is updated when it receives a new IP address. To ensure client names can be resolved to IP addresses, you should configure integration of DHCP and DNS.

DHCP can also be integrated with the Routing and Remote Access Service (RRAS). When configured, dial-up networking or virtual private network (VPN) clients can log on to the network remotely and use DHCP to configure their IP address and TCP/IP options. The server managing their connection to the network is called a remote access server, and it is the responsibility of this server to obtain blocks of IP addresses from a DHCP server for use by remote clients. If a DHCP server is not available when the remote access server requests IP addresses, the remote clients are configured with automatic private IP addresses.