The etymology of a linguistic unit – commonly a word or a stem – is a twofold story (which is here considered backwards, in the direction of reconstruction):

1. Its first (more recent) part is the history of the unit in the language in question.
2. Its second (older) part is its origin.

Part 1 of the story thus is made up of documented history. Part 2 is reconstruction proper; it deals with the motivation of the word at the stage when it was coined.

As an example, consider the etymology of the English word hound:

1. Modern English hound means ‘hunting dog’. In Middle English, the significans and significatum were the same. The Old English predecessor of the word is hund ‘dog’. Thus, the word underwent semantic specification during its English history.
2. The Germanic cognates include German Hund and Middle Dutch hond, both ‘dog’. They all go back to Proto-Germanic *hund-az ‘dog’. This, in turn, goes back to PIE *kwntós, a suffixed variant of *kwon, which appears in Ancient Greek kuōn, and all of which mean ‘dog’.

An etymological dictionary is one which provides the etymology for its lemmata. Since the second part of etymology generally involves historical comparison of languages, an etymological dictionary mentions several languages.

As for lemmatization and entry structure, there are essentially two possibilities:

1. The lemmas are lexemes of a historical language, either an ancient or a modern language. In the entry, the lemma is compared with cognate forms of other languages and traced back to some proto-form.
2. The lemmas are roots of a proto-language. In the entry, their fate in the various daughter languages is pursued. Thus, the story mentioned above would be told in chronological order.

In the former type of etymological dictionary, loans are often excluded from lemmatization. This is justified on the grounds that part 1 of a loanword's etymology only leads back to the moment that it was borrowed – which may be a relatively short story – while part 2 of the etymology would apply to the donor language and would thus be the task of the etymological dictionary of that language.

In either type of etymological dictionary, a set of indices is usually appended, each devoted to one of the languages concerned in the dictionary and comprising those words of that language that appear in the entries.