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The telephone was not the beginning of wire based communication.  It was however, the application that would drive telecommunications into nearly every home in the developed world.  Originally based on point-to-point two wire dedicated circuits, manual switch boards were introduced in the late 1870s to allow switching of multiple lines from a central exchange. To make a call, a calling party would lift the receiver off-hook, placing a DC resistance in the otherwise open telephone circuit, and lighting a signal lamp next to their local circuit on the switchboard.  The operator would plug their headset into the appropriate calling line, ask the caller for the called number, and connect the corresponding local circuit to complete the line, or connect to a trunk line to send the same process to another exchange. This process was very labour intensive, prone to abuse, and took an average of 15 minutes to complete a long-distance call.
“Legend has it that in 1889 an undertaker in Kansas named Almond Strowger suspected a local telephone operator was routing business away from his funeral parlour to his only competition, the husband of the operator. Born was a ‘man on a mission’ bent on developing a switching system to replace operators by allowing user-directed calls without intervention.”
http://www.technology.niagarac.on.ca/staff/mcsele/TelephoneSwitch.html
In 1891, Strowger invented the stepping switch, an electromechanical 10 contact device that would incrementally connect the next circuit based on a pulse generated by a rotary dial on the phone.  When arranged in banks, pauses in dialling would indicate to the switch to cascade to the next stepping switch allowing multiple digits to be used.  The stepping switch was fundamental to the automation of exchanges but was limited in terms of scalability.
By 1904 there were over three million phones in the US, still connected by manual switchboard exchanges.
http://en.wikipedia.org/wiki/History_of_the_telephone
Exchanges based on stepping switches were soon challenged by crossbar technology that was able to accept pulses at 20 per second, a rate twice that of Strowger’s model.  A crossbar switch uses N inputs and M outputs to provide N x M cross points.  At each cross point is a switch, which when used with multiple crossbar layers can provide a virtually unlimited number of connections.  Introduced in 1963 by AT&T, TouchTone, using Dual Tone Multi Frequency technology, slowly replaced rotary dialling as the standard for landline service.
Housed in a central office, the telephone switch, and later telephone exchange, includes all the electronic and mechanical systems necessary for switching circuits between local lines and other remote switches via trunk lines. Since the majority of phone lines are idle for most of the day, a concentrator is used to aggregate the local loop lines before connecting to the central office.  Carrier switches, or Tandem switches, are telephone switches used solely to connect between exchanges.  The collection of switches in the public network make up what is known as the Public Switched Telephony Network.  Normally a telephone service provider will own and operate the telephone switching infrastructure in that area however businesses and private organisations may own their own small switch called a Private Branch eXchange (PBX).
Today, the local exchange automatically senses when a receiver goes off-hook, sends a dial-tone, and uses pulses, or DTMF, generated by the phone to route the call to another local circuit at that exchange or over a trunk towards another exchange.

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