DHCP is a protocol used for automatic configuration of computers connected to IP networks. DHCP operates on a client server model in four phases:
Discover: A client broadcasts DHCP Discover message when it comes alive on the network.
Offer: When a DHCP server receives the DHCP Discover message from the client, it reserves an IP address for the client and sends a DHCP Offer message to the client offering the reserved IP address.
Request: The client receives the DHCP offer message and broadcasts a DHCP request message to show its consent to accept the offered IP address.
Acknowledge: When the DHCP server receives the DHCP Request message from the client, it sends a DHCP Ack packet to the client. At this point the IP configuration process is complete.
For details, please refer to any good text on TCP/IP.