Computers must be able to communicate with each other over the network. For that, we need a wide range of protocols for hardware, software, and communications media. To stay organized and efficient, these protocols are organized in the protocol stack. The stack is comprised of layers on top of each other.

Each layer works directly with the layer above and below it; and each layer works on the packet in different ways. As packets are passed from one layer to the next, each layer examines or modifies the packet in some way. The use of protocol stacks in network communications makes the task of implementing protocols much easier.

So, encapsulation occurs when the packet works its way down the protocol stack. Each layer encapsulates (adds) information around the packet it received from the layer immediately above it and sent to the layer below.