The IP masquerade facility comes with its own set of side effects, some of which are useful and some of which might become bothersome.
None of the hosts on the supported network behind the masquerade router are ever directly seen; consequently, you need only one valid and routable IP address to allow all hosts to make network connections out onto the Internet. This has a downside; none of those hosts are visible from the Internet and you can't directly connect to them from the Internet; the only host visible on a masqueraded network is the masquerade machine itself. This is important when you consider services such as mail or FTP. It helps determine what services should be provided by the masquerade host and what services it should proxy or otherwise treat specially.
Second, because none of the masqueraded hosts are visible, they are relatively protected from attacks from outside; this could simplify or even remove the need for firewall configuration on the masquerade host. You shouldn't rely too heavily on this, though. Your whole network will be only as safe as your masquerade host, so you should use firewall to protect it if security is a concern.
Third, IP masquerade will have some impact on the performance of your networking. In typical configurations this will probably be barely measurable. If you have large numbers of active masquerade sessions, though, you may find that the processing required at the masquerade machine begins to impact your network throughput. IP masquerade must do a good deal of work for each datagram compared to the process of conventional routing. That 386SX16 machine you have been planning on using as a masquerade machine supporting a dial-up link to the Internet might be fine, but don't expect too much if you decide you want to use it as a router in your corporate network at Ethernet speeds.
Last, some network services just won't work through masquerade, or at least not without a lot of help. Typically, these are services that rely on incoming sessions to work, such as some types of Direct Communications Channels (DCC), features in IRC, or certain types of video and audio multicasting services. Some of these services have specially developed kernel modules to provide solutions for these, and we'll talk about those in a moment. For others, it is possible that you will find no support, so be aware,it won't be suitable in all situations.