Layer 3 refers to the Network layer of the commonly-referenced multilayered communication model, Open Systems Interconnection (OSI). The Network layer is concerned with knowing the address of the neighboring nodes in the network, selecting routes and quality of service, and recognizing and forwarding to the Transport layer incoming messages for local host domains.
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A router is a layer 3 device, although some newer switches also perform layer 3 functions. The Internet Protocol (IP) address is a layer 3 address.