I don't want to get too technical, but it essentially works because the packet based backbone of the internet and the public switch telephone network (PSTN) are both owned by the same telecommunications companies (Sprint, SBC, Verizon, etc.) What that means is that they can tag a certain IP address (packet based) to a traditional phone number (telephone network) and route your calls properly.
Here are things you want to consider: 1) You can't dial 911 from a VoIP phone the same way you can from a PSTN phone, 2) VoIP offers far more ways to enhance voice communications because it is packet based. What I am talking about are things like voice messages, sending data with voice, etc.
I only have a cell phone so I use neither service, but from what I have seen with VoIP phones, people really use the enhanced features and rarely rue the loss of 911 calling. If I were going to get a land line, it would be VoIP.