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IEEE standard 802.15.4 defines the physical (PHY) and medium access control (MAC) layers for low-cost and very low-power short-range wireless communications. One of the promising applications offered by the standard is wireless sensor networks. To begin with, this paper shows the propagation characteristics of the IEEE 802.15.4 radio signal in indoor environments such as "power decay factor" due to near/far effect and "fading distribution." Then, the paper presents a wireless sensor network system for location estimation which utilizes only received signal strength indicator (RSSI) and discusses the location estimation performance.