Linux has a very powerful IP stack built into the operating system. Linux itself has the capability of routing user LAN to the internet with NAT or Network Address Translation (explain NAT). In the Linux world this is often called IP Masquerading.
one of the favorite way to use Linux as a router is with a micro-distribution. There are versions of Linux out there that run off of a single floppy disk. Using one of these distributions, you can convert an old, unused computer (even a 486!) into a capable broadband router. Since the software fits on a floppy, then user don’t even need a hard drive in the system! Most of the micro-distributions of Linux routers have minimum requirements of a 386 with 16Mb of memory.
Cyote Linux has a very cool installation and configuration method. Cyote Linux starts with a Windows program. Run it, and you can actually configure the router in Windows. Next, a program creates a bootable floppy disk that has your fully configured Linux broadband router!
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