Whatsoever device/computer playing role of a DHCP server, a DHCP server is responsible for providing automatic IP addresses to the computers that are configured to obtain the addresses automatically. Such computers are called DHCP client computers.
Types of IP Addresses
Static IP Address
When a computer in a network is not configured to get the IP address automatically and the administrator has assigned the address to the computer manually, such address is called static IP address.
A static IP address is permanent and does not change automatically, until the administrator manually changes it. Also, by assigning a static IP address to the computer, it becomes easier for the administrator and other users to memorize and locate the machine while communicating with it via local area network (LAN).
Since decent amount of manual intervention is needed while assigning static IP address to the computers, administrators mostly do so in small networks, where the maximum computers do not exceed 15-20 in numbers.
Dynamic IP Address
When a computer in a network is configured to obtain the IP address automatically from the DHCP server that is present in the network, and the DHCP server successfully assigns the address to the client computer, the automatically assigned address is called dynamic IP address.
Unlike static IP address, the dynamic IP address keeps changing automatically as per the availability of the IP addresses in the DHCP address pool.
Administrators deploy the DHCP servers in the networks and configure the client computers to get dynamic IP addresses from the deployed DHCP servers when the networks have large number of computers, say 21-50 or more, and it becomes practically unfeasible to assign the IP address to each computer individually.
Earlier, the DHCP servers were deployed on a full-fledged dedicated hardware computer systems if the number of DHCP client computers were huge in numbers, say 200 or more. If the number of DHCP client computers were less, and the DHCP servers were not expected to consume extra processing or memory, the administrators used to deploy the role of the DHCP server on the servers that were already playing the role of any other server and required less processing. (For example, a print server.).
On the other hand, these days if the number of DHCP client computers are less, most administrators prefer deploying the DHCP server on a virtual machine in order save the hardware cost. Administrators still prefer deploying the DHCP server on a dedicated hardware computer if the number of DHCP client computers are high and they think that the virtual machine would not be able to handle all the DHCP requests efficiently.
In case any device such as wireless/wired router/modem is configured to work as a DHCP server, no such hardware or additional configuration is needed whatsoever.