Since all INTERNAL MASQed machines should NOT have official Internet assigned addressees, there must be a specific and accepted way to allocate addresses to those machines without conflicting with anyone else's Internet address.
From the original IP Masquerade FAQ:
RFC 1918 is the official document on which IP addresses are to be used in a non-connected or "private" network. There are 3 blocks of numbers set aside specifically for this purpose.
Section 3: Private Address Space The Internet Assigned Numbers Authority (IANA) has reserved the following three blocks of the IP address space for private networks: 10.0.0.0 - 10.255.255.255 172.16.0.0 - 172.31.255.255 192.168.0.0 - 192.168.255.255 We will refer to the first block as "24-bit block", the second as "20-bit block", and the third as "16-bit" block". Note that the first block is nothing but a single class A network number, while the second block is a set of 16 continuous class B network numbers, and the third block is a set of 255 continuous class C network numbers.
For the record, my preference is to use the 192.168.0.0 network with a 255.255.255.0 Class-C subnet mask and thus this HOWTO reflects this. Any of the above private networks are valid, but just be SURE to use the correct subnet-mask.
So, if you're using a Class-C network, you should number your TCP/IP enabled machines as 192.168.0.1, 192.168.0.2, 192.168.0.3, .., 192.168.0.x
192.168.0.1 is usually set as the internal gateway or Linux MASQ machine which reaches the external network. Please note that 192.168.0.0 and 192.168.0.255 are the Network and Broadcast address respectively (these addresses are RESERVED). Avoid using these addresses on your machines or your network will not function properly.