Similar to the way the Internet connects millions of computers around the world, local area networks link two or more computers within a home or office. Networking computers -- whether through Ethernet cables or via Wi-Fi -- enables file sharing between the systems and links peripherals such as printers and scanners to all networked machines. If you have multiple PCs connected to the Internet in your home through a router, you already have all the hardware you need to share files or play games over a LAN.
Uses for LAN
In the home, a local area network primarily serves as a tool for sharing files. Rather than copying a file to a USB drive, you can send it to another computer over the network at speeds far greater than your Internet speed. Adding a printer or scanner to the network makes it possible to use the peripheral from any computer in your home. If you have a compatible set-top box or game console, it can stream video files from your computer to your TV. Some computer games, such as "Minecraft," also support local multiplayer over a network. In the office, networks can host local servers, providing company-wide websites or databases that remain isolated from the Internet.
Setting up a local area network doesn't require any additional wiring beyond the same steps necessary to connect computers to the Internet: Plug each computer into the same router using an Ethernet cable, and you have a LAN. To add a printer to the network, either plug it into any PC on the network, or, if the printer offers network support, connect it directly to the router.
LAN vs. WLAN
With a wireless router, all computers and peripherals that connect via Wi-Fi make up a wireless local area network. Wireless connections run at a slower speed, but otherwise support the same functions as a wired LAN. All machines connected to the same router, whether wired or wireless, can communicate with one another.
File Sharing Setup
Since Windows 7, Windows has included HomeGroup, a quick method to set up file and peripheral sharing. Open the HomeGroup control panel on any computer and create a new group. Choose the libraries to share, and write down the displayed password. On every other computer, open the control panel, join the group using the password and select the items to share from that PC. Windows 8 displays HomeGroup settings both in the control panel and in the Settings app -- your options carry over between the two, so use whichever interface you prefer. To share an additional file or folder over the network, right-click the item, choose "Share With" and pick whether to allow HomeGroup members to edit the item or only view it.
Connect to a Specific Computer
Some applications that run over the LAN, including some network games, require an IP address to connect to another computer. To find a computer's IP on Windows 7 or 8, right-click the network status icon on the taskbar and choose "Open Network and Sharing Center." Click the name of your network on the "Connections" line and press "Details." Use the number listed under "IPv4 Address" to connect. (See Reference 3. Steps are minimally different than referenced, but I tested on both Win 7 and 8.) This IP address only works within your local network, not over the Internet.