Same Network
Each Host has an NIC and hence has an MAC (Media Access Control) Address
The Host will also have an IP Address and a Subnet Mask
Host A acquires the IP Address of Host B (There are multiple ways to acquire the IP)
Then Host A checks if Host B is on the same network as itself (This is done by looking at the Subnet Mask)
Once Host A identifies that Host B is on the same network as itself it will encapsulate the data by generating a Layer 3 Packet that contains the Source and Destination IP Address
Layer 3 cannot directly talk with the wire so the packet needs to be converted into a Layer 2 frame
In this Layer the Source and Destination MAC Address is required as Host A does not have the MAC Address of Host B it uses ARP (Address Resolution Protocol)
Once it receives the MAC Address it can construct the Layer 2 frame and send it over the wire
Every subsequent connection between Host A and Host B can happen easily as all the necessary information are known by both Host
This process remains the same even if there and Switches and Hubs on the network
Foreign Network
Host A want to communicate with Host C, Host A knows the IP Address of Host C and by looking at the Subnet Mask is able to identify that Host C is on a foreign network
Host A creates the Layer 3 Packet using the source and destination IP Address
Since Host C is on a foreign network Host A understands that the next hop that the packet has to be sent is the Router of its network
Host A does not know the MAC Address to the Router and uses ARP for the same (Host A already knows the IP Address of the Router as it is configured as its Default Gateway)
Once Host A receives the MAC Address it creates the Layer 2 frame and sends the packet to the Router
Once the packet is received it discards the Layer 2 header and adds new Layer 2 headers as required for the packet to reach Host C