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Firewalls operate at a (relatively) low level of the TCP/IP protocol stack as IP-packet filters, not allowing packets to pass through the firewall unless they match the rules. The firewall administrator may define the rules; or default built-in rules may apply (as in some inflexible firewall systems).
A more permissive setup could allow any packet to pass the filter as long as it does not match one or more "negative-rules", or "deny rules". Today network firewalls are built into most computer operating systems and network appliances.
Modern firewalls can filter traffic based on many packet attributes like source IP address, source port, destination IP address or port, destination service like WWW or FTP. They can filter based on protocols, TTL values, netblock of originator, domain name of the source, and many other attributes.
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