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Ever wonder where this little guy gets its information from, be it happy or sad?

	Sad LAN Connection
	Happy LAN Connection
	Sad Wi-Fi Connection
	Happy Wi-Fi Connection

Essentially, a task runs whenever a network configuration change event takes place.  This calls a service which first tries to NSLookup www.msftncsi.com, the Microsoft Network Connection Status Indicator site.  If this is successful, it then performs an HTTP GET on a simple text file stored on this site.

If these two steps work, it proves that DNS, Routing, and HTTP traffic are all allowed and working.

Now, if you’re on a system that can access certain sites explicitly, like Updates.Microsoft.com then you may still a see a status icon of disconnected, even if your system can get out to the general web.  This might be because msftncsi.com remains blocked.

So, the icon is a great indicator of whether or not you have web access for most cases, but not necessarily in high security environments.

Source : http://blogs.technet.com/b/networking/archive/2012/12/20/the-network-connection-status-icon.aspx