Mobile IP is an open standard that allows devices to change networks while maintaining the same IP address. This ensures ongoing connections and applications are not dropped when switching networks. It works by assigning two IP addresses - a static home address and a care-of address that changes based on the device's current network location. When the device roams away from its home network, its traffic is encapsulated and tunneled through its home network to maintain connectivity using its home address. Mobile IP provides mobility across IP networks while cellular IP focuses on optimizing mobility within cellular networks.