Addressing Scheme

IP addresses are of 4 bytes and consist of :
i) The network address, followed by
ii) The host address
The first part identifies a network on which the host resides and the second part identifies the particular host on the given network. Some nodes which have more than one interface to a network must be assigned separate internet addresses for each interface. This multi-layer addressing makes it easier to find and deliver data to the destination. A fixed size for each of these would lead to wastage or under-usage that is either there will be too many network addresses and few hosts in each (which causes problems for routers who route based on the network address) or there will be very few network addresses and lots of hosts (which will be a waste for small network requirements). Thus, we do away with any notion of fixed sizes for the network and host addresses.
We classify networks as follows:
Large Networks : 8-bit network address and 24-bit host address. There are approximately 16 million hosts per network and a maximum of 126 ( 2^7 - 2 ) Class A networks can be defined. The calculation requires that 2 be subtracted because 0.0.0.0 is reserved for use as the default route and 127.0.0.0 be reserved for the loop back function. Moreover each Class A network can support a maximum of 16,777,214 (2^24 - 2) hosts per network. The host calculation requires that 2 be subtracted because all 0's are reserved to identify the network itself and all 1s are reserved for broadcast addresses. The reserved numbers may not be assigned to individual hosts.
Medium Networks : 16-bit network address and 16-bit host address. There are approximately 65000 hosts per network and a maximum of 16,384 (2^14) Class B networks can be defined with up to (2^16-2) hosts per network.
Small networks : 24-bit network address and 8-bit host address. There are approximately 250 hosts per network.
You might think that Large and Medium networks are sort of a waste as few corporations/organizations are large enough to have 65000 different hosts. (By the way, there are very few corporations in the world with even close to 65000 employees, and even in these corporations it is highly unlikely that each employee has his/her own computer connected to the network.) Well, if you think so, you're right. This decision seems to have been a mistak