A firewall protects the server from unauthorized access by closing off unused ports and controlling access to your server.
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There are two main types of firewalls:  hardware and software.  
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A software firewall runs on the server itself.  Examples of software firewalls are Windows Firewall, ZoneAlarm and IPtables.  Software firewalls are a cost effective way to protect low-traffic, single server deployments.
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A hardware runs separate from the server andadds an extra layer of security and performance by offloading the firewall task to a dedicated device.  Hardware firewalls are extremely beneficial in multiple-server deployments or heavy traffic conditions.