IP addresses are 32-bit numbers that uniquely identify devices on a network. They allow for data transmission between computers and consist of four sections ranging from 0-255. There are five classes of IP addresses - A, B, C, D, and E - that are used to define network sizes. While IPv4 addresses are common, IPv6 addresses with more capacity are also in use. IP addresses can be static, assigned manually, or dynamic through protocols like DHCP.