Using the Windows XP Firewall with LAN ports & Ethernet ADSL modems
At its simplest, a firewall prevents incoming traffic on the Internet from reaching your machine. More sophisticated firewalls can apply more specific control. (See Cadzow Knowledgebase Article 1242 for more discussion.)
Windows XP contains an inbuilt firewall which performs the simple task of blocking incoming traffic, and for most users this is all that is required to protect their systems from certain types of attacks.
Typically, you will enable the firewall on the external interface (such as a dial-up modem connection) and disable it on the internal interface (the local area network connection).
However if your system alternates between accessing the internet via a network connection and via an ethernet ADSL modem, you will have a single logical LAN connection which sometimes is used in the LAN and sometimes used standalone. In the former situation, enabling the firewall may prevent certain network functions from working properly. However if you have a standalone connection to the internet that is not firewalled, you are opening your system up for attacks from the outside.
Therefore it may be necessary to disable the firewall when connected to the LAN and enable it when connected to the standalone ADSL modem. Further, you may find it easier to enable the firewall prior to logging off from the LAN and disabling it prior to shutting down when standalone.
The following Microsoft Knowledgebase article describes enabling and disabling the firewall: http://support.microsoft.com/kb/283673.
The connectoid that is relevant in this case is the Local Area Connection. If you have any dial-up connections they should have the firewall enabled at all times.