IP spoofing is the technique of sending packets that are apparently from some other machine. The usual reason for this is that it is part of a Denial of Service attack.
However, if the machine being impersonated has a trust relationship with the machine receiving the spoofed packets, it may be part of a security breach: the packets sent might create a user account, for example. For such an attack to succeed at all, the impersonated machine has to be silenced, so an attempt to breach security on machine A would be combined with a DOS on trusted host B. Both attacks probably involve spoofed packets, though for different purposes.
http://www.iss.net/security_center/advice/Underground/Hacking/Methods/Technical/Spoofing/default.htm lists various attacks that involve spoofing.
One obvious defense is at the router/firewall: you shouldn't be paying attention to packets originating from improper places. For example, an address on your internal lan shouldn't be coming from outside that lan.
I think it's also silly to allow any trust relationships for simple user convenience. If data has to be transferred without user intervention, establishing a trust relationship may sometimes be the only reasonable solution, but too often I see such relationships established just out of convenience, so poor Joe User doesn't have to remember another password. Also, if these do have to be established, traffic should be limited to whatever the real need is. Of course, being this suspicious is harder to implement and harder to maintain.
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