What is an IP PBX?

A PBX is a customer premises telephone system that manages telephones in the enterprise and acts as the gateway to external voice networks. A switch/router directs incoming packets to the appropriate data network. Traditionally, two separate networks are required: one for voice and one for data.
Instead of two separate networks, one each for data and voice, only one network is needed if voice is packetized (Voice over IP) and sent over the data network.
An IP PBX is a combination of a switch/router and a PBX that handles Voice over IP (VoIP)

In an IP PBX, computers can be on a shared LAN that is connected to the IP PBX. Telephones, on the other hand, should be directly connected to the IP PBX. This avoids Quality of Service (QoS) issues that arise if both computers and telephones are on a shared LAN. In such a case, voice packets will have to compete with data packets for the shared LAN. Poor telephone voice quality will result if voice packets are not transmitted in a timely manner.

An IP PBX also acts as a gateway that provides voice connections (voice lines, T1s) to a LEC, a long distance company, etc. and data connections (cable, DSL, ISDN, E1) to a cable operator, a LEC, an ISP, etc. IP PBXs can be used bypass the circuit-switched telephone network by using the data network to connect to branch offices and other locations on the data network.

Using a single converged network that carries both voice (packetized) and data allows development of new services not typically available on the traditional network - for example, the use of one central directory across multiple locations and unified messaging.

An IP PBX replaces a traditional PBX. It can be used with

an IP phones (with a built-in DSP chip that converts voices to IP packets and vice versa),
a soft phone (software application on PCs that also converts voice to packets and vice versa), which is used with a headset or a handset,
existing phones along adapters that packetize voice, and
standard phones connected to PCs (PCs acts as the adapters).

As in case of computing devices, IP addresses are automatically assigned to phones as they connect to the system. This means that a telephone can be moved from one location on the network to another. The telephone number remains the same as it associated with the phone.

VoIP packets can be packetized using protocols such as G.711 or G.723:

G.711: an encoding standard for packetized voice; uses 64 kbs and can communicate with other G.711 devices.
G.723: an encoding standard for packetized voice that does compression; uses 6.4 kbs and can communicate with other G.723 devices but not G711 devices.