Skype uses peer-to-peer VoIP (Voice over Internet Protocol) to enable people to use their computers to talk to one another with no additional cost. It is the current leader of the pack in VoIP and offers excellent voice quality. There are a number of "paid for" features; the main one being able to purchase"credits" and then use them to call a normal phone anywhere in the world at reduced rates compared to a normal telephony provider: but the "paid for" features are "opt in" and the basic software is free.
There is also a video conference feature, which is also free; but I haven't had the chance to check that out as I don't currently have a web cam.