From LQWiki
A modem is a device that is used to communicate with other computers. A modem is necessary because your phone line is built best to carry analog voice signals, but your computer is best built to send digital computer signals. The modem works to convert digital signals (called modulation) to work best with your phone line, and back again (demodulation).
From the two terms, we get the word modem (mo-dem)
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Types of modem
Modems can be contained inside your computer, or can be plugged in to a socket on the computer and lie outside the computer. As such, they're known as internal and external modems respectively.
An external modem is connected to the computer by way of a cable. They can plug in to your computer's USB port, though traditionally, they would connect through the serial port, and most modems still do so.
An internal modem is found inside the computer, and is connected to the computer via a bus (usually PCI).
Hardware and software modems
An important consideration to consider is whether the modem is a hardware or a software modem (which can be either both internal or external).
Hardware modems
Hardware (or controller-based) modems have everything built into their hardware. The device handles the entire analog-digital conversion.
Having the hardware control everything has a number of advantages and disadvantages. Because these modems handle most things themselves, there is no need for complex software to do the work of conversion (as is the case in software modems). This alleviates the need for having the the computer do the work of a modem, and can makes it easier for the modem to work under Linux or other operating systems. However, this makes the modem more difficult to update.
Hardware modems can be external or internal. External modems often use a preexisting serial port to communicate with your computer. Internal hardware modems tend to have a serial controller built-in (hence the name, controller-based).
Software modems
Software modems (aka softmodems or winmodems) contain the bare minimum needed to convert analog telephone signals to digital. The rest of the work of the modem is delegated to the computer. On it's own, the software modem isn't really a modem - only with the correct software modem drivers can the device work.
Again, software modems have advantages and disadvantages. If a hardware modem has a bug in it's controller, it can't be easily repaired unless the entire modem is too, or if the hardware modem can be "flashed", which isn't common. However, if the problem is the same with a software modem, the software only needs updating (by perhaps downloading and installing a new driver). However, this software is often only written for the Windows operating systems, rendering the device useless under other operating systems who do not have the correct driver for the modem.
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