Your telephone basically has to do two things using two wires; transmit signals and your voice. The signal is the ring tone you get. It used to be a bell that alerts you to an incoming call. Then there is a dial (now a digital push button) that is used to enter the phone number of the person you wish to speak to. When you pick up the phone you in effect operate a switch which then puts the telephone in to active state by means of a resistance short across the wires, thus causing the current to flow along the wires. Once this is done the telephone exchange detects the DC current, connects a digit receiver and sends to you a dial tone which indicates it is ready for you to dial or push the number buttons. These buttons are connected to a tone generator in your phone and generates DTMF tones. Now the exchange will know who you desire to be connected to. Whilst your phone is inactive with the handset replaced, its bell or other alerting device is connected across the line through a capacitor. This does not short the line so the exchange knows that the phone is on hook inactive. This also means that only the bell is connected electrically, so when someone calls your number the exchange sends a high voltage pulsating signal that causes the phone to ring. When you pick up the handset the switch disconnects the bell then connects the voice parts of your phone putting the resistance short on the line as described previously. This now confirms to the exchange that the phone has been answered. Now that both phones have their handsets off the cradle this is the signalling job done. You can now talk to your friend using the voice parts of your phone. The voice parts are in the handset and consist of a transmitter (microphone) and a receiver. Powered by the line the transmitter puts out an electric current which varies in response to the acoustic pressure waves as produced from your voice. This causes variations of the electric current transmitted along the telephone line to the other phone. Once these hit the other phone they cause the coil in the receiver to move back and forth, thus reproducing the same acoustic pressure waves as the transmitter received from your voice. So your friend now hears what you said like you were standing next to them. This applies vice versa to you, so you have your conversation. Once you have finished the conversation, when you replace the handset the DC current ceases to flow and the exchange detects this so disconnects the callers.