A firewall is a part of a computer system or network that is designed to block unauthorized access while permitting authorized communications. It is a device or set of devices configured to permit, deny, encrypt, decrypt, or proxy all (in and out) computer traffic between different security domains based upon a set of rules and other criteria.

Firewalls can be implemented in either hardware or software, or a combination of both. Firewalls are frequently used to prevent unauthorized Internet users from accessing private networks connected to the Internet, especially intranets. All messages entering or leaving the intranet pass through the firewall, which examines each message and blocks those that do not meet the specified security criteria.

There are several types of firewall techniques:

Packet filter: Packet filtering inspects each packet passing through the network and accepts or rejects it based on user-defined rules. Although difficult to configure, it is fairly effective and mostly transparent to its users. It is susceptible to IP spoofing.

Application gateway: Applies security mechanisms to specific applications, such as FTP and Telnet servers. This is very effective, but can impose a performance degradation.

Circuit-level gateway: Applies security mechanisms when a TCP or UDP connection is established. Once the connection has been made, packets can flow between the hosts without further checking.

Proxy server: Intercepts all messages entering and leaving the network. The proxy server effectively hides the true network addresses.

http://en.wikipedia.org/wiki/Firewall_(computing)