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The basic idea behind hosted PBX services is pretty straightforward. Most businesses today have a closet full of hardware – the phone system, voicemail, and all the requisite wiring – that runs their telecommunications system. Imagine that entire closet full of equipment being relocated to the phone company's offices without changing the way your phones work, and you've got a hosted PBX service.
Your incoming calls get routed to the service provider. There, dedicated hardware provides all the same features that you'd get out of a premise-based PBX, including voicemail, call forwarding and transfers, and more. When a call is transferred to one of your phones, it's sent over a broadband Internet connection to your office.
The main benefit is that you get all the features and reliability of a high-end PBX phone system without having to maintain it yourself. There are plenty of other advantages, too, especially for mobile or remote employees.