I concur with whoiswes.
Since I can’t describe it any better, here’s a quote from chapter 8 of Asterisk: The future of Telephony.
[quote]Why Echo Occurs
Before we discuss measures to deal with echo, let’s first take a look at why echo occurs in the analog world. If you hear echo, it’s not your phone that’s causing the problem; it’s the far end of the circuit. Conversely, echo heard on the far end is being generated at your end. Echo is caused by the fact that an analog local loop circuit has to transmit and receive on the same pair of wires. If this circuit is not electrically balanced, or if a low-quality telephone is connected to the end of the circuit, signals it receives can be reflected back, becoming part of the return transmission. When this reflected circuit gets back to you, you will hear the words you spoke just moments before. The human ear will perceive an echo after a delay of roughly 40 milliseconds. In a cheap telephone, it is possible for echo to be generated in the body of the handset.
This is why some cheap IP phones can cause echo even when the entire end-to end connection does not contain an analog circuit.† In the VoIP world, echo is usually introduced either by an analog circuit somewhere in the connection, or by a cheap end point reflecting back some of the signal (e.g., feedback through a hands free or poorly designed handset). A good rule of thumb is to keep latency to less than 250 milliseconds.[/quote]