What is IP masquerading and when is it of use?
IP masquerading is a process where one computer acts as an IP gateway for a network. All computers on the network send their IP packets through the gateway, which replaces the source IP address with its own address and then forwards it to the internet. Perhaps the source IP port number is also replaced with another port number, although that is less interesting. All hosts on the internet see the packet as originating from the gateway.
Any host on the Internet which wishes to send a packet back, ie in reply, must necessarily address that packet to the gateway. Remember that the gateway is the only host seen on the internet. The gateway rewrites the destination address, replacing its own address with the IP address of the machine which is being masqueraded, and forwards that packet on to the local network for delivery.
This procedure sounds simple, and it is. It provides an effective means by which you can provide second class internet connections for a complete LAN using only one (internet) IP address. Note the essential phrase, ``second class internet connections''.
IP masquerading cannot provide full internet connections to the hosts which hide behind it. The reason for this is that any connection can be established outwards, that is a hidden host can connect to any service which is "advertised" on the internet, but no connection can be established inwards. No host which is hidden behind the gateway will ever receive a connection for a port which it listens to. This precludes hidden hosts from offering services such as Telnet, file transfer, www, mail, news and so on.
The reason why no inward connection will ever be established is that the process of listening on a port produces no packet. When a program listens it does not annouce that it is listening, it just listens. When a host wishes to connect to a service it has no way of knowing if that connection can possibly succeed; it simply sends a connection packet to the destination IP address. If there no host at that destination address, the host trying to connect eventually times out and reports the connection failed. If there is a host at that destination address, but it is not listening at that port, the destination host returns a connection refused message and the host trying to connect immediately reports the connection failed.
Remember that the only IP address visible on the internet, with respect to a masqueraded LAN, is the gateway's address. Any inbound connection must be addressed to the gateway's address. With no prior communication between the hidden host and the gateway, there is nothing to indicate (to the gateway) how to rewrite the destination address for local delivery.
The conclusion of all of this is that if your program works by listening at an address (I suspect ICQ does this) so that other hosts on the internet can connect to you, that program will be of no use to you if your connection is through a masquerading gateway.