Masquerading makes use of a characteristic of TCP/IP data transmission, which is to use port numbers for destination and source as well as the source and destination addresses. When the router receives a data packet for transfer it now notes the IP address and the sender's port in an internal table. It then gives the packet its unique IP address and a new port number, which could be any number. It also enters this new port on the table and forwards the packet with the new information.
The response to this new packet is now sent to the IP address of the router with the new sender port number. The entry in the internal table allows the router to assign this response to the original sender again.