We use telephone almost everyday. It started from a humble beginning, from Mr. Alexander Graham Bell (some of us don't even know this dude invented the telephone) to our sophisticated Nokia, Sony Ericsson and Iphone today.
Alexander Graham Bell
Yet how many of us actually ask: How does a phone work?
We have to answer those in two parts: wire phone and wireless phone, which is the cell phone, and wire phone is also related to how out internet works, and again, how many of us ask the same question again? How does the internet work? We plug in our computer and got onto the network, what does it mean to someone who has never used the internet? Why do we need phone lines to connect the internet?? What is a modem? Why do we need modem??
A telephone is wired to a network of lines, connecting all the neighboring phones. In larger area the network would be bigger, and it is all connected in a box on a pole
and for a bigger population it's in a metal booth or something, which often end up at someone's front yard.
The idea is simple, pick up the receiver and you'll hear a dial tone, dial your number and the network booth would instantly direct your call to the intended phone line, and when it is connected, your speech(sound wave) is converted into digital signal via a modulator. The signal will travel via the phone line to the other end, and be converted back to sound wave. For farther call, for example international call, the signal will be transmitted via satellites(there are hundreds of satellites in our orbit now) or via undersea fiber optic cables.
As for wireless phone, they need cell phone towers. Take maxis for example (go Maxis go!!!)
They have excellent coverage =P simply because they have set up more cell phone towers than their competitors. Each cell phone towers limit the amount of users, for example 3000 users per tower, and thus the larger the population of a certain area, more cell towers are needed. Your call can actually be passed from one cell phone tower to the next.
As you are walking or driving and you are leaving one area and entering another, your cell phone will automatically connect to the tower with the strongest signal. You won't even notice that this has happened and your call will continue as normal.. This is the transmission method, but the concept is still the same, converting sound wave to digital signal via a modulator, and then going to the tower, venture to the other phone, convert the signal back to sound wave via demodulator..
But beware that someone might end up talking in the same frequency as you are(they can hear what you say!!), intentionally or unintentionally.
The internet is using the same concept, but they dont speak, they transmit bits. Each computer transmit their "speech" in the form of bits that are converted to digital signals via a modulator, and travel through the telephone line to the other side and demodulated into bits again. Modulator and Demodulator is the device we call MODEM
Each modem has its transfer limit, for example a 56K modem transmit 56000 bits of data per second, or modulate-demodulating 56000 bits of data per second, and so the same concept works for broadband modem and narrowband modem. It all depends on the amount of transistors and diodes in the modem nowadays. As technology advances we get faster speed and broader band, and encourages people to download more porns and torrents =P
For this entry, I may not have the most correct answer to how those stuff work, because I'm just a general physics student and I read those in magazines and websites and do not actually attend classes like telecommunication engineers. So please bear with me should I make any mistake in my explanation. =)