IP is the major protocol of the Internet. A protocol sets the rules for two machines to talk or communicate with each other. IP is Internet Protocol.
Thru about 2000 the Internet used version 4 of Internet Protocol which is called IPv4. Since then we started toward using IPv6 (Internet Protocol version 6) but still mainly use IPv4 today. Recently there has been a major push to move to IPv6. Last Wednesday (6/6/2012) the Internet moved to more strongly using IPv6 but still uses IPv4.
One of the functions of IP is that it assigns and keeps up with the addresses of all devices on the Internet. These addresses are assigned to the organization and then to a device. The addresses show a relationship to the network they are on and organization they belong to. They can be changed to a different device. There are also MAC addresses assigned to all devices and that address is a unique address assigned when the device is made. The MAC address is like your house number and the IP address is similar to the name of the family currently living in the house.
IPv4 only has 4,294,967,296 possible unique addresses. A number of them are used for special purposes so the usable number is less. IPv4 addresses are 32 bits long and usually show as four decimal numbers separated by periods like 192.168.2.1 In the late 1990s we began running out of addresses when every device had it own totally unique address on the Internet. We worked around this at that time by using things like NAT (Network Address Translation) and DHCP (Dynamic Host Configuration Protocol) so that we could use the same addresses in different organizations but they had one common device hooked to the Internet with a unique address that converted addresses from inside to its address and kept track what was sent where so when the response came back it could be converted back to the correct inside address and sent to that machine. That got us about 12 extra years to get the bugs out of IPv6 and get software and hardware designed to use IPv6.
The addresses in IPv6 are 4 times as long as in IPv4 which gives us 3.403×1038 unique addresses or a 3 and 38 zeros after it. The addresses in IPv6 are 128 bits long and are in hexadecimal (base 16 number system) so they look different than IPv4 address. This now means we have plenty of addresses for devices for the foreseeable future. Software and equipment made over the past 8 years or so are IPv6 compliant. Older software (such as Windows XP) and equipment may only work with IPv4. To facilitate this move the newer software and hardware is made to support IPv6 and IPv4. The big item on 6/6/2012 was that major equipment at major networks and running the Internet switched from looking first for IPv4 packets to looking for IPv6 packets first and addresses and if it was not an IPv6 packet it then looks at it as a IPv4 packet.
It will be a long time before the world moves to exclusively to IPv6 and we will continue using IPv4 thru that time.