We've all seen the big old PABX unit that sits down under the reception desk, or in that funny smelling cupboard out the back. It's a mess of cables and has faded to a funny yellow colour, no one wants to touch it for fear of wrecking the phones for three days. This box is typically to allow many phones to be able to get calls in and out through few phone lines (i.e. ten desk phones connecting through three phone lines).
These units are ultimitely a thing of the past, with IP telephony, or VoIP desk phones themselves can connect directly to a "cloud hosted" PABX provider and be provided with the same sort of functions you're used to. Each handset has its own "line" which typically costs $5 to $10 per month, this allows it to make and receive calls, transfer to and from etc. Cloud PABX based systems are excellent for small businesses as they allow you to get amongst the savings of a VoIP service, remove your old dated hardware as well as gaining new features. They are cheaper to implement than full on-premise IP PABX systems, however, once you get past 7-8 users the running costs become higher than said on-premise IP PABX.
Typically, a business with over 8 phones, will seldom need to have all lines used at a time, this means you can start to save versus the cloud PABX option by having an on-premise PABX unit. This is because the phone IP PABX unit connects whatever number of lines you pay for and then shares those lines amongst all of the handsets.
Now don't worry! They're much tidier than they used to be, as they run through your computer data cabling, rather than needing those flat grey cables that get tangled up on everything. The handsets also have the nifty feature of being able to have the computer's network connected into the back of them, so the handset sits in-between the wall back and the computer, greatly reducing cabling costs in a new implementation. On-premise systems tend to allow much better handling of calls, so parking and call queuing work better on these units.