IDN is short for Internationalized Domain Name. An IDN contains one or more native language characters and can contain letters or characters used in any other non-latin based language such as German, Spanish, Russian, Chinese, and even Arabic characters.
The key benefit of IDN Domain Names is that it allows you to target your audience in their own native language. With all major web browsers and email clients now supporting non-English characters, many online businesses are now realising the potential benefits of IDN Domain Names, and they continue to grow in popularity each day.
Search Engine Optimization (SEO) is another benefactor of using an IDN domain as it will allow you to target the exact words non-English speakers are typing when using search engines.
Domain name servers only support the English alphabet (A though Z), digits zero to nine and a couple punctuation marks like dashes and full stops. With those limitations in mind a system was developed called Punycode, which allows non-English characters to be accepted in domain name servers.
Punycode converts any non-English character into code that can be read by DNS. As an example, españa.com when converted using Punycode results in the domain xn--espaa-rta.com. After being converted by Punycode, the resulting domain is called an ACE String.
When you register an IDN Domain Name, you are registering the ACE String as these are supported by DNS since they do not contain any non-English characters.