It's very simple. If you are running through a router you don't need to do this, but otherwise you need to set up your network settings thus:
Change DHCP to NO and set the IPs to something like 192.168.0.1 and 192.168.0.2, etc., in order from the first machine to the last (any machine can be in any order).
Set your subnet masks to 255 255 255 0 (the same on every machine).
Let the host connect first, and then connect one player at a time. Wait till each player after the host is on the final connection screen (with two dots rather than three, although the host will have one dot) before adding another to the network.
Back in the main options one player, and only one player, must be set up as host. He also selects the number of players, the number of laps, penalties and so-on. The two-player options affect LAN mode as well as the LAN and Network options.
If someone is watching using the Live option rather than playing, he is counted in the number of players.
Make sure you all reboot before connecting to be sure.
Before you do all this you need the right equipment: ethernet cables plugged into slimline PS2s or original PS2s with ethernet adaptors and then into a switch or router or a crossover cable connected directly from one machine to a second machine for two-player LANning.
You also need to fill your Favourites folder with cars to use in LAN mode and to select all the available tracks between your group of players in the Track Registry in the options menu.