I've always assumed they work kind of like Cell Phones but on a party channel in the same way two way radios. Like they have partry lines where more than one person can talk in the same LS but it is turned on and off like a bluetooth ear peice since the player or NPC reaches towards their ear to use it. And while it has the range of a cell phone that being near infinite, it seems very subject to EM interfearence as well as needing open space as it has a problem while under ground in some CSs.