With the ML2 plugin, Neutron supports a range of traditional and overlay networking types provided by type drivers, including:

A local network is one that is isolated from other networks and nodes. Instances connected to a local network may communicate with other instances in the same network on the same compute node but may be unable to communicate with instances in the same network that reside on another host. Because of this designed limitation, local networks are recommended for testing purposes only.

In a flat network, no VLAN tagging or other network segregation takes place. In some configurations, instances can reside in the same network as the host machines.

VLAN networks are networks that utilize 802.1q tagging to segregate network traffic. Instances in the same VLAN are considered part of the same network and are in the same layer 2 broadcast domain. InterVLAN routing, or routing between VLANs, is only possible through the use of a router.

A VXLAN network uses a unique segmentation ID, called VNI, to differentiate traffic from other VXLAN networks. Traffic from one instance to another is encapsulated by the host using the VNI and sent over an existing layer 3 network using UDP, where it is decapsulated and forwarded to the instance. The use of VXLAN to encapsulate packets over an existing network is meant to solve limitations of VLANs and physical switching infrastructures. More information on how VXLAN encapsulation works is described in RFC 7348, available at https://tools.ietf.org/html/rfc7348.

A GRE network is similar to a VXLAN network in that traffic from one instance to another is encapsulated and sent over an existing layer 3 network. A unique segmentation ID is used to differentiate traffic from other GRE networks. Rather than using UDP as the transport mechanism, GRE traffic uses IP protocol 47. More information on how GRE encapsulation works is described in RFC 2784, available at https://tools.ietf.org/html/rfc2784.