Windows networks can be domain based or workgroup based, the latter stemming from the first DOS/Windows networks.

On the one hand a network that uses an organizational structure of unique names for PCs, printers and other resources within subgroups is a workgroup-based network. This type of network is used in small business and home networks. When configuring a PC for a network and the workgroup selection is chosen, the subgroup name often defaults to WORKGROUP, which in many cases is the only subgroup ever used.

On the other hand a domain-based network is a network that uses names that conform to the domain name system (DNS) for identifying resources. Large enterprises as well as many smaller business use domain-based networks, which conform to the TCP/IP protocol suite. The directory structure in Microsoft's Active Directory is based on the domain system.

The advantage of using the domain system is that it conforms to TCP/IP, which is the de facto communications protocol standard for all networks, whether public or private. The domain-based system offers significantly more administration flexibility than workgroup-based networks.