The transmitter or microphone of a telephone consists of a small capsule filled with carbon grains, with an opening on the outward facing side, next to a metal diaphragm. The receiver consists of a coil wound around a soft iron core and a diaphragm.
When a person speaks the diaphragm in the microphone is set in motion and the carbon granules are subject to variable compression, making the resistance of the carbon grains vary too. A steady current is passed through the microphone by connecting it to a battery. When sound waves enter the microphone the current will vary. This same varying current passes through the receiver at the other end, making the soft iron core attract and repel the diaphragm in the receiver with the same frequency. It vibrates and produces a copy of the persons voice as the speak at the microphone.