This defines the IP ranges for which a peer will route traffic. On simple clients, this is usually a single address (the VPN address of the simple client itself). For bounce servers this will be a range of the IPs or subnets that the relay server is capable of routing traffic for. Multiple IPs and subnets may be specified using comma-separated IPv4 or IPv6 CIDR notation (from a single /32 or /128 address, all the way up to 0.0.0.0/0 and ::/0 to indicate a default route to send all internet and VPN traffic through that peer). This option may be specified multiple times.
When deciding how to route a packet, the system chooses the most specific route first, and falls back to broader routes. So for a packet destined to 192.0.2.3, the system would first look for a peer advertising 192.0.2.3/32 specifically, and would fall back to a peer advertising 192.0.2.1/24 or a larger range like 0.0.0.0/0 as a last resort.
Examples
peer is a simple client that only accepts traffic to/from itself
AllowedIPs = 192.0.2.3/32
peer is a relay server that can bounce VPN traffic to all other peers
AllowedIPs = 192.0.2.1/24
peer is a relay server that bounces all internet & VPN traffic (like a proxy), including IPv6
AllowedIPs = 0.0.0.0/0,::/0
peer is a relay server that routes to itself and only one other peer
AllowedIPs = 192.0.2.3/32,192.0.2.4/32
peer is a relay server that routes to itself and all nodes on its local LAN
AllowedIPs = 192.0.2.3/32,192.168.1.1/24