Asterisk is an open-source, Voice over IP PBX written for Linux. It also runs on FreeBSD, but with the unfortunate lack of some features. At its core, Asterisk is a codec translator and channel bridging system, permitting a user to talk over one or more channels in full duplex mode. It uses SIP, Asterisk's own IAX, and RTP as its primary protocols.
Asterisk is a valuable tool for bringing Voice over IP to the masses. It can be used on any Linux machine with sound hardware, and even some without sound hardware. You do not need any special cards to run the Asterisk system. There are a number of providers that can bridge the PSTN to a Voice over IP system like Asterisk, which permits you to have your entire phone system laid out over IP. One of Asterisk's more intriguing uses is international calling - you have a friend who lives in Australia while you live in the US, you can contact him via IP and speak with him as long as he has an account on or owns an Asterisk server with decent connectivity.
Asterisk supports the Asterisk Gateway Interface or AGI, which allows you to script Asterisk's behavior and offer advanced programmability common in today's modern, many-thousand-dollar commercial PBX systems. It also offers a strong API allowing you to program your own "plugins" for Asterisk. Example plugins include voice mail, teleconferencing, directory services, and playing MP3s for Music on Hold (MOH).
You may use Asterisk with a software phone (or softphone), a hardware VoIP phone (such as a Cisco 7960), or a standard analog telephone in conjunction with an Analog Telephone Adapter or ATA. Once configured properly, you may use your Asterisk system to do all kinds of interesting things, including setting up conferences for your friends to chat on for nothing except the cost of your IP connectivity. My laptop has a softphone on it, so I can make calls using my home number, accept calls from anywhere in the world, or call-forward between Asterisk systems. The flexibility is incredible.
The only real fear is regulation of voice over IP, which hasn't happened yet, but may in the future.