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Every computer on the internet has an unique "IP address" (this isn't strictly true, but bear in mind that this is the "for beginners" explaination. If you want details, see the book referenced at the end of this article). An IP address is a series of four numbers between 0 and 255 seperated by periods, e.g. 123.45.65.3 or 245.45.121.253 are both IP addresses. Your computer will have an IP address now as you read this. (if you are using Windows, you can see yours by clicking on the start button, then clicking on Run, then by typing in winipcfg in the box.) All your favourite websites will have an IP address - for instance www.yahoo.com is 216.32.74.51 - try typing http://216.32.74.51 as a web address into your browser for proof.
The trouble with IP addresses are that they are not very descriptive. A domain name converts a name humans can understand into an IP address. When you type www.yahoo.com into your browser, the browser uses the domain name system (DNS) to look up www.yahoo.com. The DNS returns 216.32.74.51, and then the browser accesses 216.32.74.51.
Domain names are handed out by the central domain registries. US domain names (domains ending in .org,.com,.net) are handed out by the US registry, and each country has it's own registry (domains ending in .fr are handled by the French registrar for example). Very few people buy domains direct from the central registries in the same way most people do not buy their groceries from the farm - most people buy groceries in supermarkets where they can benifit from bulk discounts the supermarkets can get. We get bulk discounts on domains, and as such offer much cheaper domains than the £80 the UK registrar charges direct.
Good domain names are running out fast. It's reckoned that in the .com domain, just about every English word .com is taken, and there are no domains left of two or three letters. Many of these domains have been taken by so called "cybersquatters," people who have no interest in the domains per se, but are looking to make a profit by reselling the domains. The original cybersquatters tried taking the names of existing companies and celebrities who had not got websites, and then trying to sell them to the company / celebrity involved for huge sums. Fortunately this practise has stopped since legal procedures have been put in place to ensure that trademark holders keep the rights to their domains online. Most people trying to make money out of domains have realised this, and gone for domains such as www.carsonline.com - web addresses that say what they do, but don't include a specific company name
The situation in the .co.uk domain is no way near as dire, but the bottom line is simple - if you want your domain, register it now! Next time you look, it may have been taken!
If you want to know how domains and the DNS work in great detail, the book to read is "DNS and BIND" by Albitz and Liu, O'Reilly and Associates. Be warned however that this is seriously heavyweight stuff. For a more readable introduction, try the chapter on DNS in any TCP/IP book.