Network classes:

An address is made up of the "network", the "subnet", then the "host" portions. The "network" is defined by the first 3 bits, and can be class A, B, C, etc... "Networks" are allocated to an organization. An organization can then subdivide the network into "subnets", by taking some of the bits allocated in the "host" portion of the address and using them to create subnetworks instead. The remaining bits are then allocated to the host portion of the address.

If an organization has a Class A network, uses a subnet mask of /24, it then has 8 bits per network to allocate to hosts. That leaves 254 hosts. An example would be "126" is the Class A network address, "3.4" is the subnet, and "50" is the host address on that network.