Network Address Translation (NAT) allows a single device like a router to act as an agent between a private network and the public internet using a single public IP address. This conserves limited public IP addresses as only the NAT device needs a public IP, while an entire private network can use private IP addresses. NAT works by translating the private IP address and port of devices in the private network to the public IP address and unique port of the NAT device when communicating with the public internet, and vice versa for incoming traffic. This allows all private network devices to access the internet through the single public IP address of the NAT device.