If you have a local network you probably want access to the internet from other systems connected to it. This firewall assumes this is the case if forwarding is turned on in Linux.
If a local network has one the the address ranges 10.0.0.0-10.255.255.255, 172.16.0.0-172.31.255.255 or 192.168.0.0-192.168.255.255 (RFC1918) masquerading will be done.
This is a technique which enables any computer on the local network to access the internet without letting anyone know you have more than one computer.