When a computer receives a packet from the network, the computer will first check the destination MAC address of the packet at the Datalink Layer (2). If it passes, it's then passed on to the Network layer.
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At the Network layer, it will check the packet to see if the destination IP address matches the computer's IP address. (If the packet is a broadcast, it will pass the network layer anyway.)
From there, the packet is processed as required by the upper layers.
On the other hand, the computer may be generating a packet to send to the network. Then, as the packet travels down the OSI model and reaches the Network layer, the destination and source IP address of this packet are added in the IP header.
The IP header
It's worth noting that the 9th field, which is the "Protocol" field, contains some important information that the computer uses to find out where it must pass the datagram once it strips off the IP header.
If you remember, TCP and UDP exist on Layer 4 of the OSI Model, which is the transport layer. When data arrives at a computer and the packet is processed by each layer, it needs to know whereabouts above to pass the data. This protocol field tells the computer to give the remaining data to either the TCP or UDP protocol, which is directly above it.
The destination IP address is another important field which contains the IP address of the destination machine.
The next section talks about the five different classes of IP address.
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