[Mark McLeod]

I'm not sure how MASQUERADE is used in your context, but in general Masquerading is how we talk from a device on a private network to the public Internet, also known as Network Address Translation. I doubt it will affect your internal UDP traffic, but iptables would get tricky without a two-way conversation and packet forwarding may get weird.

Using a typical home network as an example, via DHCP all the devices are given a private IP network address. By convention, none of these addresses are allowed through a Gateway out on the Internet. That's because the private IP address your computer uses is the same private IP address your next door neighbor is using and the Internet would have no way to route any responses back to the proper house.
The way around this is a normal function of the Gateway where it masquerades as the machine originating the IP traffic. It knows who you are, it has a valid public IP address, and it pretends the IP traffic is really coming from it. It acts as a clearing house between public and private networks.