How does a firewall work in networking?

Firewalls in networking are used to filter IP addresses. By filtering IP addresses what I mean to say is that based on your organisational policy, certain IP addresses would be blocked and certain IP addresses would be allowed to access. 

Even as a normal user, you can set up your own firewall rules on your system and as per your policy you can allow or restrict certain websites or IP addresses.
Some wonders of firewalls are:

• You can set up firewall in such a way that only outgoing traffics from your network are allowed but no external traffics ( except traffics that are exclusively allowed) can enter your internal network.
• You can block access of unwanted sites as part of your organization's policy or as parents to protect your kids from landing to unwanted sites accidentally.
• You can restrict applications from accessing the internet that does not require the internet to be operated.
• You can use a firewall to internally separate one domain from another domain in an organization. 
• A domain could be a department comprising of a certain number of computers within an organization. 
• Modern routers and switches come with built-in firewalls with some advanced features that can be used to scale up the security of a network in a more efficient way.