The Open Systems Interconnection (OSI) Reference Model provides a layered network design framework that establishes a standard so that devices from different vendors work together.

Layer 2 (The Data-Link Layer)
Layer 2 switches operate using physical network addresses. Physical addresses, also known as link-layer, hardware, or MAC-layer addresses, identify individual devices. Most hardware devices are permanently assigned this number during the manufacturing process.

Switches operating at Layer 2 are very fast because they’re just sorting physical addresses, but they usually aren’t very smart.

Layer 3 (The Network Layer)
Layer 3 switches use network or IP addresses that identify locations on the network. Physical addresses identify devices; network addresses identify locations. A location can be a LAN workstation, a location in a computer’s memory, or even a packet of data traveling through a network.

Network addresses are hierarchical. The more details included, the more specific the address becomes and the easier it is to find.

Switches operating at Layer 3 are smarter than Layer 2 devices and incorporate routing functions to actively calculate the best way to send a packet to its destination. However, because Layer 3 Switches take the extra time to read more details of a network address, they are sometimes much slower than Layer 2 Switches.

Layer 4 (The Transport Layer)
Layer 4 of the OSI Model coordinates communications between systems. Layer 4 identifies which application protocols (HTTP, SNTP, FTP, etc.) are included with each packet and uses this information to hand off the packet to the appropriate higher-layer software. Layer 4 switches make packet forwarding decisions based not only on the MAC address and IP address, but also on the application a packet belongs to.

Because Layer 4 devices enable you to establish priorities for network traffic based on application, you can assign a high priority to packets belonging to vital in-house applications, such as Peoplesoft®, with different forwarding rules for low-priority packets, such as generic HTTP-based Internet traffic.

Layer 4 switches also provide an effective wire-speed security shield for your network.