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It is used mainly with ADSL services where individual users connect to the ADSL transceiver (modem) over Ethernet
By using PPPoE, users can virtually "dial" from one machine to another over an Ethernet network, establish a point to point connection between them and then securely transport data packets over the connection.
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- PPP was designed to run directly over these serial links. But with the advent of broadband internet access technologies such as ADSL and cable modems, there was a considerable increase in the bandwidth delivered to the end users. This meant that the host computers at the customer's premises were connected to the ADSL or cable modem over a much faster medium such as Ethernet. It also meant that multiple hosts could connect to the Internet through a single access device, which alone had the actual Internet connection, in the form of a WAN link. The simplest and most cost-effective method to connect multiple machines together is Ethernet. Hence typical scenarios involved multiple host PCs connected to each other and to an Internet access device by Ethernet.
- Once the packets from different users reached the access device, they were sent out on the single WAN link and individual user information was lost. It would have been possible to build a protocol newly on top of Ethernet, but then the Access device would have become very complex as it maintains all user information. Instead, running PPP over Ethernet in the host PCs itself was much simpler and just required updating the software in the PC. The PPPoE session terminates at the service provider's equipment thus giving complete control to the service provider. Hence PPPoE was devised to achieve the best of both worlds - the ability to connect a network of hosts to a service provider at higher speeds, and the use of an existing connection mechanism for establishing sessions while presenting a familiar user interface. A RADIUS server is commonly responsible for handling these.
- Ethernet packets contain the hardware address of the destination node (MAC address) encoded in the packet. This helps the packet reach the intended destination.
- Once the MAC address of the peer is known and a session has been established, the two end points have all the information needed to start building a point-to-point connection over Ethernet and exchange packets over the connection. This next stage after Discovery is called the Session stage.

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