What is a PBX?
A PBX is a telephone switch operated independently of the phone company. The term stands for, "private branch exchange." Businesses who need lots of unique phone lines are the classic use case for a PBX. When you call a company and dial an extension to reach a specific person, you are interacting with that company's PBX. They effectively turn one (or more) phone lines into many.
To illustrate, imagine a company with 5000 telephones. Paying the phone company for 5000 separate phone numbers would be pretty crazy due to the high cost, especially when you consider that not all of them are going to be used at exactly the same time. It makes far more sense to just give every user an extension of a primary (or departmental) phone number. With a PBX, that company can buy fewer lines, yet still have 5000 functional telephones.
But what happens when someone within the PBX needs call someone outside the company? If the PBX only contains one line, then it won't be possible for multiple users to make an outbound call. That's why the PBX automatically chooses a free line to use. In this way, a PBX scales infinitely according to the needs of the organization.
Also, PBX technology makes sure that calls are routed between phone lines of the same company, when a person in one department needs to call someone in another department. In that case, all you need to dial is 3 or 4 digits to be connected.
An IP PBX is a little different in that the calls are made using VOIP, and internet access can be provided using the same line. IP PBX systems are increasingly more common and reduce costs even further. We are even seeing cloud PBX systems now, where the entire system is hosted and managed for the organization, reducing both cost and complexity.