What is a PBX?

The term "PBX" refers to a "Private Branch Exchange" -- more commonly referred to as a "Phone System". The actual term refers to a "telephone exchange" serving a particular business or office, as opposed to one owned by your local phone company which serves a much larger community.

The function of a PBX is to make connections between the phones in your office (or whatever the PBX is servicing) and the "outside" phone services. The PBX handles phone calls coming in from "outside" and routes them in the appropriate manner, as well as outgoing calls from your individual phones -- routing them to other internal phones or outside as appropriate. The PBX makes decisions based on predetermined criteria on how to route phone calls. You may well have multiple connections "outside" for local calls, long distance, or even Voice over IP. The PBX makes its selections on what route should be used for an individual call.

We used to say the "outside" connections were simply "Central Office Lines" -- phone lines connected to your local telco provider, but those connections have become much fuzzier in recent years with the advent of Voice Over IP (VOIP). The connections to the outside world are generally referred to as "trunks".

A modern PBX would provide the following functions, as well as many others depending on the particular system:

Lots of additional information on what a PBX is can be found on wikipedia.