You're correct! When IP builds a datagram, the target hardware address (MAC) is unknown. The Address Resolution Process (ARP) is used to find this information and resolve it to a known IP. It is a two-step process, (1) ARP request, and (2) ARP reply. The result of the ARP response is stored in the ARP cache for a short period of time. The time varies from vendor to vendor. Microsoft usually sets this time for 120 seconds (2 minutes). See for yourself by typing "arp ?a" at the command prompt. Here's a good explanation of the process if you'd like to learn more.
Dig Deeper on LANs (Local Area Networks)
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