Link-local Addresses

In case a host is not able to acquire an IP address from the DHCP server and it has not
been assigned any IP address manually, the host can assign itself an IP address from a
range of reserved Link-local addresses. Link-local address ranges from 169.254.0.0 –
169.254.255.255.
Assume a network segment where all systems are configured to acquire IP addresses
from a DHCP server connected to the same network segment. If the DHCP server is not
available, no host on the segment will be able to communicate to any other. Windows
(98 or later), and Mac OS (8.0 or later) supports this functionality of self-configuration of
Link-local IP address. In absence of DHCP server, every host machine randomly chooses
an IP address from the above mentioned range and then checks to ascertain by means
of ARP, if some other host also has not configured itself with the same IP address. Once
all hosts are using link local addresses of same range, they can communicate with each
other.
These IP addresses cannot help system to communicate when they do not belong to the
same physical or logical segment. These IPs are also not routable.