This is a 300 type telephone provided in the 1930s, 1940s and 1950s.

The telephone is a piece of equipment connected to the exchange via a pair of wires. This is known as a 2 wire connection.
Normally the telephone sits with the handset on its cradle. This operates a set of contacts known as "switch hooks". The switch hooks are "open" when the telephone is not in use and most of the circuitry is disconnected. Only the bell in series with a capacitor is left connected across the line. No direct current can flow and therefore no relays can operate in the exchange.
However the exchange can contact the telephone by sending "ringing" at 75 volts AC down the telephone pair. AC can flow through the capacitor and bell which will respond to the current. Note that DC does not flow around the circuit at this stage as the main telephone circuit is still disconnected by the switch hooks.

When the handset is lifted, the switch hooks close and DC can flow through the telephone. In the case of an incoming call this will be detected at the exchange and stop the ringing. If the customer is starting to make an outgoing call, the "loop" placed across the telephone pair will operate a line relay in the exchange and eventually cause the connection of dialling tone to the line.
The current through the telephone largely passes through the microphone, or "transmitter" as it was called during the first half of the last century. The microphone is of the carbon type, ie a diaphragm rests against a set of carbon granules, the resistance of which varies when the diaphragm vibrates to speech. The resistance of a "good" microphone will be somewhere close to 200 ohms.

The earpiece is an electro-magnetic device in which variations in the voltage received causes changes to the magnetic field produced by a coil and which in turn causes a diaphragm in the magnetic field to vibrate in sympathy.
The other main component in the speech path is the induction coil. This is a transformer which matches the impedance of the microphone and earpiece to that of the line. It acts as a voltage step up transformer so that as strong a signal as possible is transmitted to the line. Most coils also have a clever "anti-sidetone" action. ie it reduces the volume of your own voice in your earpiece, thereby encouraging you to speak at a reasonable volume.

For automatic telephony the other essential is the dial. This has a main set of contacts which introduce a number of quick disconnections in the "loop" depending upon the digit dialled. These disconnections step selectors in the exchange to the number of the required customer.
The dial has two other subsidiary contacts which stay operated all the time the dial is "off-normal". These contacts short circuit the speech path in the telephone so that the customer does not hear loud dial clicks in his receiver. They also connect a spark quench circuit consisting of the bell capacitor in series with 30 ohms across the dial springs to reduce arcing. Note that the exchange relays produce back EMFs of several hundred volts during dialling.

This is the full diagram for a 300 type telephone

These are the connections required for a 700 type telephone which uses fixed wiring

These are the connections required for a 700 type telephone which uses a modern plug in line cord

These are the cabling connections for modern outlet sockets

These are the cabling connections for a plan 1A