The Public Switched Telephone Network (PSTN) is a product of the twentieth century. Circuit switching is a type of communication in which a dedicated circuit is open for the duration of the transmission. Over the twentieth century, the method of making the connection changed from human operators to automated electronic switching to digital switching. The Public Switched Telephone Network is the network of copper and fiber-optic wires that criss-cross the globe. Until very recently, that meant calls were very expensive, because you were “renting” a length of copper wire that the telephone company “owned,” and you would pay more for being on the line longer, and also more if the line was physically longer (e.g. calling from L.A. to Philadelphia). International calls were extremely expensive.
A modern digital phone (such as a cordless phone) that is not a VoIP phone relies on what’s called “Time Division Multiplexing” (TDM). In TDM, the phone takes thousands of samples of your voice every second and sends the samples along one channel to the receiving phone. This is different from packet switching, where the data is broken down, and sent along many different channels. Even with today’s fiber optic cables capable of running thousands of lines at once, and even if you are using a digital phone, it is not the same as having Voice over Internet Protocol.
“Packet Switching” refers to data being broken down and moved in pieces across a network. Within each packet, you have the data itself, as well as information about where the data comes from and is going, so the packet can go along any route as fast as it can to find its destination. Imagine a highway and a parkway. The highway is normally much faster, but if is congested, it makes sense to take a winding, empty, parkway rather than a straight, jammed, highway. This is the principal that makes the entire internet possible. In some cases, a “Quality of Service” (QoS) modem ensures that real-time data (voice, video, gaming) takes priority over other data (web surfing).
VoIP servers have their own switches that “hand-off” to the PSTN, allowing interoperability. If you are making long distance or even international call, you are, in effect, making a local (circuit switched) call from the nearest (packet switching) server. This is why Voice over Internet Protocol minutes are so much cheaper than PSTN minutes. Most residential and business VoIP providers also include unlimited in-network minutes, even internationally.
Because VoIP is a new technology, with so many available features, the PSTN is sometimes called the “Plain Old Telephone Service” (POTS). Similarly, a privately owned PSTN network is called a “Private Branch Exchange” (PBX). With VoIP, your provider can use their servers as a “hosted PBX,” or combine your on-site PBX equipment with their own in a “hybrid PBX.” Older technologies, like the POTS, TDM phones, and fax machines, are sometimes called “legacy systems,” and another name for backward compatibility is “legacy support.”