WHAT ARE THE DIFFERENCES BETWEEN CELL PHONE SERVICE AND VOIP?

VoIP is Voice over IP, which basically means that the calls run over the Internet. Most times to use VoIP you have to be plugged into the Internet or use a wifi enabled VoIP phone, like the Cisco WIP310.
Cell phones use a variety of technologies. However, most today run on a 2g or 3g network, which is different than VoIP. Basically these networks run off technologies such as GSM or PDMA which are broadcast from towers.
Here is an example of a VoIP cell phone:
http://www.freedomiq.com/voip-phones/cisco-wip310-wireless-ip-phone.shtml
It does not run the same as a regular cell, you have to be in a certain range of a wireless router.
If you want to know more about how cell phones work this page has excellent information:
http://www.howstuffworks.com/cell-phone.htm

Let me get one thing straight – you want to use voip on your iphone so you can call people?
If you do, check out icall.It`s a free app for the iphone,computer, and simply calling people online.All calls within the us and canada are free,and people can call you on any cell phone, landline phone, etc when they assign you your extention.The only slight problem is that your calls are limited to 5 minutes, but if you want to talk more, just hang up and redial.Free download in the app store. Find out more at http://www.icall.com

> the number just get somehow recognized as a number and get dialed through my regular cell service
That one…
many phones and S/w recognise numbers that look like Phone Numbers and can dial them directly.
So no, not VOIP in your iPhone.
Skype (OK, a real VOIP application) does the same on a PC, in web pages unless you turn it off.

Dtmf Pound – Hash Key ( tones )
Dual-tone multifrequency
A method used by the telephone system to recognise the keys pressed when dialling. Pressing a key on the phone’s keypad generates two simultaneous tones, which are decoded by the exchange to determine which key was pressed.
I believe you may find more about VOIP and your question about “DTMF”
http://www.howtounlockvoip.com/

There is no sim card inVOIP where there is in celllphone.VOIP is cheap and some times free http://www.freecalltips.com