Voice over Internet Protocol (VoIP) is a reliable technology for transmitting ordinary telephone calls over your internet connection using packet linked routes, also called IP Telephony . Internet Protocol involves the transmission of telephone calls over a data network like the Internet that can reach any telephone on the public-switched telephone network (PSTN).
Voice over IP (also called VoIP, IP Telephony, and Internet telephony) is the routing of voice conversations over the Internet or any other IP network. The voice data flows over a general-purpose packet-switched network, instead of the traditional dedicated, circuit-switched voice transmission lines.
From Encarta Reference
Voice Over Internet Protocol (VOIP) is a method for making telephone calls over the Internet by sending voice data in separate packets, just as e-mail is sent. Each packet is assigned a code for its destination, and the packets are then reassembled in the correct order at the receiving end. Recent technological improvements have made VOIP almost as seamless and smooth as a regular telephone call.