When a coin is put into a payphone, the payphone emits tones to the ACTS (Automated Coin Toll System). A red box can fool the ACTS into believing that an individual actually put money into the phone simply by playing the ACTS tones into the telephone microphone. After ACTS hears the simulated tones, an individual can place a telephone call for free. This sort of action mimics what phreakers did to fool the phone system into letting them make calls for free.
See Also: Phreaking.
The Tech FAQ. What is Red Box? [Online, 2004.] The Tech FAQ Website. http://www.linuxsecurity.com/docs/Hack-FAQ/telephony/red-box.shtml.