Say you're responsible for administering the IP network of a small university. You begin with an address prefix for the entire campus, say 10.10/16. Next, you subnet that prefix into longer prefixes for buildings within the campus. Perhaps 10.10.1/24 will be assigned to Einstein Hall, 10.10.2/24 is designated for Wilson Hall, 10.10.3/24 for Steinbeck Hall, etc.

Of course, it isn't quite that simple. Wilson Hall may have 300 computers in it. A 24-bit prefix, which only matches 256 addresses (254 assignable), won't work! So maybe we'll have to use 10.10.2/23 for Wilson Hall, which means 10.10.3/24 won't be available for Steinbeck Hall (the prefixes overlap). Subnetting must be planned.

Ultimately, the campus buildings will be interconnected with routers, which will use the prefixes to direct traffic among the buildings. Those routers connecting the campus to other networks will advertise a single route, 10.10/16, for the entire university. Among themselves, the campus routers will use the longer subnet prefixes (like 10.10.1/24) to route traffic between the buildings.