You can even obtain an IP address automatically without contacting a DHCP server (or a device, like a router, running a DHCP component). An XP machine that's configured for automatic IP configuration but that is not able to locate a DHCP server will assign itself an IP addresses through a mechanism called Automatic Private IP Addressing (APIPA).
APIPA is not new to XP. It has been used since the rollout of Windows 98. Here's how it works:
Trying in vain to locate a DHCP server, XP picks out a random IP address from the private APIPA range of 169.254.x.y, where x and y are random numbers from 0 to 255. The subnet mask assigned to this range is 255.255.0.0, meaning that all APIPA-assigned computers "live" on the 169.254 network. A default gateway is not assigned.
What does this all mean? A couple things: One is that a roomful of XP computers can communicate with one another without manually setting up IP addresses. Why? Because all these DHCP clients will exist on the same 169.254 subnet, and traffic to and from these neighboring computers won't have to be routed.
But, since there's no default gateway assigned, no computer with an APIPA address can communicate with any computers that live on the other side of a router. Thus, an APIPA-assigned system will not be able to surf the Net.
This behavior can be especially beneficial when a connection to the ISP goes down. You won't be able to get on the Internet, but you can still transfer a report to your boss's computer in the next cubicle without major reconfiguration.
And, if your computer has assigned itself an APIPA address and the DHCP server becomes available again, the system automatically releases the APIPA address and configures itself with the newly offered DHCP address, and you're back in business.