Teredo is an IPv6 transition technology that allows automatic IPv6 tunneling between hosts that are located across one or more IPv4 NATs. To traverse IPv4 NATs, IPv6 packets are sent as IPv4 User Datagram Protocol (UDP) messages. If the NAT supports UDP port translation, then the NAT supports Teredo. The exception is a symmetric NAT.
Teredo allows nodes located behind an IPv4 NAT to obtain IPv6 unicast connectivity by tunneling packets over UDP/IPv4. This service has 3 entities: the "Teredo Server", the "Teredo Relay" and the "Teredo client". A Teredo Server is stateless whereas the Teredo Relay keeps a state of each peer.
Teredo is designed as a last resort transition technology for IPv6 connectivity. If native IPv6, 6to4, or Intrasite Automatic Tunnel Addressing Protocol (ISATAP) connectivity is present, the host does not act as a Teredo client. As more IPv4 edge devices are upgraded to support 6to4 and IPv6 connectivity becomes ubiquitous, Teredo will be used less and less until finally it is not used at all.
Note: Teredo interface is primarily supported by Windows Vista & Windows Server 2008. Limited functionality of Teredo Interface supported (solicited traffic can be received) by Windows XP SP2 & Windows Server 2003.
Ref: http://technet.microsoft.com/en-us/library/bb457011.aspx
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