In subnetting, a network divides into several smaller networks with each subnetwork  having its own subnetworks. A portion of IP address is indicating the network (netid), and a portion indicates the network hostid. This means that there is a sense of hierarchy in IP addressing. To each a host on the internet, we must first reach the network using the first portion of the address. Then we must reach the host itself using the second portion. In the other word, IP address is designed with two level of hierarchy. However in many cases two levels of hierarchy are not enough. For example, imagine an organization with the network address 141.14.0.0 (a class B address). The organization has two hierarchical addressing, but cannot have more than one physical network. One solution of this problem is subnetting. Further division of a network into smaller networks is called subnetting.

Three level of hierarchy

Adding subnetworks an intermediate level of hierarchy in the IP addressing system. Now we have three levels; site, subnet and host. The site is the first level. The second level is subnet and the tird level is host of hierarchy, it defines the connection of the host to the subnetwork.