OK, let me try this again.  I am trying to figure out the difference between
conventional layer 3 routing and layer 3 switching.  A little background.  I
am currently working towards my CCNA (have been for about 3 years).  At any
rate, everything I read and look at says that switching/bridging is a layer
2 function, routing is a layer 3 function.  

Either I don't have a good grasp of the OSI model, switching, routing, VLANs
or all of the above.

The network:

Host A  10.1.1.2 MAC 00.AA                                     Host B
10.1.2.2 MAC 00.BB
  |        10.1.1.1 MAC 01.AA          10.1.2.1 MAC 02.BB        |
 switch A-----------------------Router-------------------------switch B
            10.1.1.0/24                        10.1.2.0/24

This is an ethernet network.  Both segments are connected by a traditional
router say a 2500. 
In this instance the router interfaces are subnet A 10.1.1.1, and subnet B
10.1.2.1

For simplicity, assume ARP cache is empty.
Host A wishes to ping Host B
End user on Host A enters - ping 10.1.2.2
The IP packet places the source address 10.1.1.2 and the destination address
10.1.2.2 into the packet.
The IP protocol examines the IP address and based on the IP address
determines this is in another subnet.
An ARP request goes out for 10.1.1.1 (default gateway) and the MAC address
is found.
The DLL then places the source MAC address 00.AA and the destination MAC
01.AA into the frame.
The frame then goes out the wire to the destination MAC.
The router interface sees this frame as destined for itself.  It
de-encapsulates the frame removing the MAC addresses.  The router then
examines the IP address, based on the routing table it knows the destination
port.  
The router leaves the same IP source (10.1.1.2) and destination (10.1.2.2)
in the packet.
The frame is rebuilt with the new MAC address of source 02.BB and
destination 00.BB
Host B grabs this packet and does it's thing.

Now, if I replace the router with a 6509 switch, with routing, how does the
process change?
Said 6509 would be equipped with a 10/100 card so that the hosts are now
directly connected.  The router interface is now a virtual interface, there
is no physical interface.  Which is another question.  How does the 6509
determine this virtual address?  

Am I correct?  
Inter VLAN communication cannot occur without a router.
Switching is based on MAC address.
Routing is based on IP address.

I believe the term "layer 3 routing" is a marketing term, not scientific or
engineering in nature.




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