How does a DHCP Server dynamically assign an IP address to a host?

Addresses are allocated after a negotiation between the server and the host to determine the length of the agreement.

Addresses are assigned for a fixed period of time. At the end of that period, a new request for an address must be made, and another address is then assigned to the host.

Address are permanently assigned so that the host uses the same address at all times.

Addresses are leased to a host. A host will usually keep the same address by periodically contacting the DHCP server to renew the lease.

Explanation

When a DHCP server dynamically allocates addresses, the client leases its IP address for a certain period of time (configured at the server) and must renew the lease to continue using it. The lease renewal process begins when a bound client (a DHCP client with a leased address) reaches what is known as the renewal time value, or T1 value, of its lease. By default, the renewal time value is 50 percent of the lease period. When a client reaches this point, it enters the renewing state and begins generating DHCPREQUEST messages. The client transmits the DHCPREQUEST messages as unicasts to the server that holds the lease. If the server is available to receive the message, it responds with either a DHCPACK message, which renews the lease and restarts the lease time clock or a DHCPNACK message, which terminates the lease and forces the client to begin the address assignment process again from the beginning.