One of the reasons that traditional land-line telephone service is going the way of the dinosaur is cell phones. The other is Voice (or Video) Over Internet Protocol. The advantages of VOIP are obvious - let's say you're in the US and you want to talk to somebody in the UK. Traditional phone service will absolutely kill you for that privilege. VOIP will be free. Other advantages include webcam integration (video phones, in other words) and the ability to more carefully and granularly manage a site's voice and data network.
VOIP can go over traditional analog phone sets via an adapter (in this case, a VOIP router, PBX or even a workstation with an Analog Telephone Adapter) over specialized IP telephones, or over a workstation with a softphone program (like Skype or Ventrillo) installed on it and a headset plugged in.
VOIP can also mean Video Over Internet protocol and in this case encompasses things like the aforementioned videophone, but also live camera feeds (a lot of modern security systems use this) or streaming video from a server (such as youtube).
Behind the scenes VOIP uses a protocol called SIP (Session Initiation Protocol) to regulate the packets and make sure the incoming data is formatted in a manner the player it's going to can make sense of.
This one is near and dear to me - I use Skype to stay in touch with some friends who are out of state, and I watch online TV on hulu and movies via Netflix.
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