How exactly does this address protection work? Tunneling requires some intermediate processing, and this is usually done at the Internet gateway. The gateway (most likely an IPSec firewall or router) must have some public IP address or it cannot function. The endpoints of the publicly-exposed tunnel are established at these gateways. If IP/IP tunneling is in effect, the gateway is the destination specified in the "outer" address. The gateway obtains the encrypted packet, decodes it for the "inside" address, and then sends it. This, of course, assumes that a secured internal network is in place and that it is not vulnerable to eavesdropping or MITM attacks.

More details about this protocol this can be found in RFC 2003 "IP encapsulation within IP" (see the Resources section).