Speaker phone allows the phone to be used at a short distance, without the phone being held next to the face, (and without using a headset.) It allows a small group of people near the phone to all hear and participate in the conversation. It is also useful for hands-free, safe operation in an automobile, and when on hold for a long period of time.
There are two distinct types of two-way speaker-phone functionality: Half-Duplex and Full-Duplex. Half-Duplex allows only one person to speak at a time. When one person is speaking, the other person can not be heard at all until the first person has stopped speaking completely. With Full-Duplex, both parties can speak naturally and be heard at the same time, just like non-speakerphone usage.
There are also one-way speakerphones, which only allow the user to listen. This is useful for waiting on hold and listening voice mail.