ISDN is a Digital network. Everything (including sounds such as voice and modem signals) is carried as a stream of bits.

This means that ISDN telephones need to be able to digitise and "un-digitise" sounds. This is performed by a device called a CODEC (Coder-Decoder) which is located inside the telephone. The CODEC translates the sounds into bits in one direction, and translates bits into sounds in the opposite direction.