When running in local files mode, a system obtains all TCP/IP configuration information from files that are located in a local directory. In network client mode, the configuration information is provided to all of the systems in the network by a remote network configuration server.
Typically, the following servers on the network run in local files mode:
Network configuration servers
Name servers that supply NIS, LDAP, or DNS services
Since clients can run in either network client mode or local files mode, on any given network, you can have a combination of these modes with which different systems are configured.