Can Someone Explain Voice Over IP Chat to Me?

You speak into a microphone. Your computer converts the sound into a digital signal and sends it over a network to another client. It is then converted back into audio for the other person to listen to.

Its basically like a telephone, but using the Internet instead of the normal phone network.

How you do it depends on which VoIP system you use, which has to be compatible with your friends. Ask them how to set it up - they know what software they are using and already have it running at their end.