http://www.storagepipeline.com/specwatch/iscsi.jhtmliSCSI
The acronym iSCSI refers to the storage protocol for Small Computer System Interface (SCSI) over the Internet. iSCSI makes the block SCSI protocol operable over IP as referenced in IETF RFC 3347. When you get past the technical jargon, the purpose of iSCSI is to use the high availability of Ethernet/IP networks to provide low-cost SAN functionality. IP networks are well understood, ubiquitous, and relatively inexpensive. iSCSI provides a viable alternative to more expensive and complicated Fibre Channel SAN implementations, and also also supports longer distances than Fibre Channel.
How iSCSI Works: The protocol embeds standard iSCSI commands into an IP packet and sends them out onto an IP network. When the packet reaches its destination, iSCSI strips away the IP headers and passes the SCSI command to the target system, such as a storage array, tape, or other server. The target system packages the result of the command -- data or an acknowledgement -- into a new IP packet and sends it back to the original system.