Codecs convert analog signals to digital signals and back again. There are three common codecs used for voice: G.711, G.729 and G.723.
The standard codec is G.711, which uses Pulse Code Modulation to convert human speech to digits. PCM processes human speech at a rate of 8,000 samples per second, putting 8 bits of data within a sample--that's about 64,000 bits of data in one second. The digital backbone of the PSTN is built around this increment, and when you run it over Ethernet, utilization comes to around 80,000 bits per second after all the protocol overhead is factored in.
The G.729 codec uses compression to decrease bandwidth utilization to roughly half of G.711 on an Ethernet network. The disadvantage of G.729 is that the compression process adds delay, which, if it gets too high, will impact the quality of the call.
G.723 provides further compression with even greater delay.
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