What is Phone System or PABX?

PBXs or phone systems make connections among the internal telephones of a private organization — usually a business — and also connect them to the public switched telephone network(PSTN) via trunk lines Because they incorporate telephones, fax machines modems and more, the general term "extension" is used to refer to any end point on the branch.

PBXs are differentiated from "key systems in that user of key systems manually select their own outgoing lines, while PABXs or phone systems select the outgoing line automatically.

Initially, the primary advantage of PBXs was cost savings on internal phone calls: handling the circuit switching locally reduced charges for local phone service.
Significant developments during the 1990s led to new types of PBX systems. The other trend was the idea of focusing on core competence PBX services had always been hard to arrange for smaller companies, and many companies realized that handling their own telephony was not their core competence. These considerations gave rise to the concept of hosted PBX. In a hosted setup, the PBX is located at and managed by the telephone service provider, and features and calls are delivered via the Internet. The customer just signs up for a service, rather than buying and maintaining expensive hardware. This essentially removes the branch from the private premises, moving it to a central location.