VoIP (Voice over Internet Protocol) is simply the transmission of voice traffic over IP-based networks.
The Internet Protocol (IP) was originally designed for data networking. The success of IP in becoming a world standard for data networking has led to its adaptation to voice networking.
Why VoIP is better ?
VoIP has become popular largely because of the cost advantages to consumers over traditional telepone networks. VoIP slashes your monthly phone bill by a whopping fifty percent. Let's put some light over these claims.
It offers cheaper international long distance rates which are generally one-tenth of what is charged by traditional phone companies. Its portability makes it a very good option and one could avoid expensive hotel phone charges and cell phone roaming charges. What one requires is just a high speed connection where one could plug the adapter into and people could reach you at your local number irrespective of your location.
Most Internet connections are charged using a flat monthly fee structure. Using the Internet connection for both data traffic and voice calls can allow consumers to get rid of one monthly payment. In addition, VoIP plans do not charge a per-minute fee for long distance.
By making VoIP calls using internet enabled cell phones one could avoid wireless roaming fees and long distance rates which generally touch north. Most of the times in-network calls to other VoIP service subscribers are free even if the calling parties are located in different parts of the world.
How does it work?
Just to confuse people, there are many kinds of VoIP. Using voice chat in MSN , G Talk or Yahoo messenger could be regarded as VoIP, so could the highly publicised Skype; but these are all proprietary systems. To talk to someone using MSN, the person at the other end also needs MSN. The same applies to Yahoo and, to a great extent, to Skype. They use their own special system that isn't open and won't connect to other systems easily.
True VoIP should really be based on the SIP system which is the recognized standard. Any SIP compatible device can talk to any other; you don't even use a PC. Any SIP telephone can call another right over the internet, you don't need any additional equipment or even a phone provider. Just plug your SIP phone into the internet connection, configure it and then dial the other person right over the internet.
In all VoIP systems, your voice is converted into packets of data, like little files, and then transmitted to the recipient over the internet and decoded back into your voice at the other end. To make it quicker, these packets are compressed before transmission, a bit like zipping a file.