From the identd(1) manpage in Debian:
Identd is a server which implements the TCP/IP proposed standard IDENT user identification protocol as specified in the RFC 1413 document.

identd operates by looking up specific TCP/IP connections and returning the user name of the process owning the connection. It can optionally return other information instead of a user name.

In other words, if you have many users on your computer and one of them initiates a network socket to a remote host, identd lets the remote host know which user on your system did so. This permits the remote host's sysadmin to report or ban people by username@host rather than banning your whole host if one of your users does something stupid -- and, in other ways (as MrFurious points out below) take actions on the basis of username.

Why is identd important to you on a private workstation? Well, for the above reasons, many IRC servers and some FTP servers will refuse to accept a connection from you unless they can get user identification from identd on your system.


Why IRC Servers like Ident

The reasons are not historical at all. When IRC turned into lamer's favorite past-time ident became a must. It prevented multiple logins from a single user as the usual goal of such user was to flood (aka DoS attack) another user. Since then most irc clients have a built in flood protection, and the old floods usually dont work. However almost all irc servers require that your box responds to an ident request.

PS: I'm reading this 5 minutes later...and it's a friggin historical going to bed
I'd like to add that identd has a third (or second, depends on how you look at it) use:

Many MUDs have banned multiplaying (player characters-to-human beings ratio != 1, that is, either one person has many characters or many persons share one character). Now, identd is obviously quite handy in preventing it. I don't know how other muds work it, but Batmud always asks for identd information (next time you login watch your /var/log/messages ... should call in shortly), but normally ignores it. However, if a player is suspected of multiple-character-crime, it is checked whether other players might be sometimes logged-in from the same host. Now, if the host provides identd information, it can be used to determine that other players from same host are not the same person. If there is no identd response, players are assumed to be one person are are all removed.

How do I know this? Simple. I got hit by it. Someone from my shell provider multiplayed, I had left my character to idle under screen, and the machine's identd was broken... bang.

I'd also like to add that there are several fake-identds (sends out whatever information you want ) out there, so the real usability of identd limits to servers with clean and/or ignorant roots.

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