Through subnetting, a network administrator can logically divide a single network into multiple subnets with fewer hosts on each. This reduces broadcast traffic across the entire network. The key concept is borrowing bits from the host portion of the IP address to create the subnet portion. For each address class, only a certain number of bits can be borrowed to create subnets while ensuring some bits remain for host IDs. Calculations using simple formulas allow determining the number of subnets and hosts per subnet available for any given subnet mask.