How does a Firewall work:

A firewall is a set of related programs, located at a network gateway server that protects the resources of a private network from users from other networks. (The term also implies the security policy that is used with the programs.) An enterprise with an intranet that allows its workers access to the wider Internet installs a firewall to prevent outsiders from accessing its own private data resources and for controlling what outside resources its own users have access to.
Basically, a firewall, working closely with a router program, examines each network packet to determine whether to forward it toward its destination. A firewall also includes or works with a proxy server that makes network requests on behalf of workstation users. A firewall is often installed in a specially designated computer separate from the rest of the network so that no incoming request can get directly at private network resources.
There are a number of firewall screening methods. A simple one is to screen requests to make sure they come from acceptable (previously identified) domain name and Internet Protocol addresses. For mobile users, firewalls allow remote access in to the private network by the use of secure logon procedures and authentication certificates.
A number of companies make firewall products. Features include logging and reporting, automatic alarms at given thresholds of attack, and a graphical user interface for controlling the firewall.