Q: OK, so exactly what is a DSL Filter and why is it needed and how do they work?

A:Riss Centaur's 50-cent DSL Filter Primer:

Way back in the dim reaches of time, the good old Bell System (Alexander Graham Bell, The Telephone Company, Ma Bell, Western Electric, Before Divestiture, the Big Breakup, whatever....) came up with the standard for the VOICE BAND or POTS (Plain Old Telephone Service) that all telephones should handle throughout the system. It was decided that telephones would need to carry signals from about 300Hz (cycles) through to about 3,300Hz. This is the range that is needed for intelligible speech. (In truth, the phone line band is 0 to 4,000Hz, just to be safe and carry touch tones.) This is also why music, with its higher frequencies (up to 20,000Hz) sounds lousy over a phone - because you lose the high frequencies.

Ok, so voice is in the band of 300-3,300Hz. Where is DSL? ADSL uses the frequencies from about 26,000 (26K) to 1,100,000 (1,100K) Hz. These much higher frequencies are outside of human hearing, but when shoved down the phone wires can carry data to the modems!

So when it is all put together it looks like this:



We have to keep the Green and the Blue out of the POTS equipment and keep the POTS equipment from messing up that set of high frequency signals.

So now the big moment! The dilemma is this: Most phones or any other type of equipment that connects to the phone line (answering machine, fax, Tivo, cable box, alarm system) were only designed to deal with Voice Band signals! If you suddenly start feeding DSL signals into them you can wind up with all sorts of problems - Noise in the voice band, Shorting out of the DSL signal, Crosstalk of noise into the DSL signal, in fact who knows what else!

Can you see the light come on? Bright Idea: Keep the DSL signal out of the equipment that does not know what to do with it. Install "The Filter"!

The Filter - AKA a Microfilter, POTS filter, DSL filter, Splitter, Inline filter, plastic box with wires on it... you get the idea.

Now, a filter works by filtering out the high frequency DSL signals, it does not let them pass through it, it only allows the low frequency voice signals to pass. That's why in the electronic business this type of circuit is known as a Low Pass filter. It is a fairly simple idea, and a fairly simple circuit to implement with coils and capacitors and resistors. They are passive devices, they usually have no active electronics in them like transistors or IC's, and need no outside power. The filter, in addition to keeping the high frequency DSL signals out of equipment that does not know what to do with it, also keeps that equipment from loading down or shorting out the DSL signal itself!
That is why everything that connects to the phone line EXCEPT THE DSL MODEM needs to be filtered in one way or another.

The two ways of filtering are: Install an inline filter on each phone and other device where it plugs into the wall - or - install a big filter at the main junction (NID) where the phone line comes in and it will handle filtering everything behind it. (And you have to run a home run wire from there to your DSL modem so it has an unfiltered signal.)

Ok, what is the difference between a Filter and a Splitter eh?
Well, they both do the same thing, they filter the DSL signal out from things that should not see the signal. The difference is in the packaging. The first inline filters just had a plug on one side and a jack on the other. You unhooked your phone from the wall jack, plugged it in to the filter jack and plugged the filter into the wall. Thus you inserted the filter between the DSL signal at the wall jack and the phone, and it kept the DSL signal out of the phone and the phone from shorting out the DSL signal.

Now if you have a newer type filter that has 2 jacks, one marked VOICE and one marked DSL, you could think of it as a splitter. In truth all the DSL jack is is an extra connection off the plug fed straight through from the wall, so you have an extra jack to plug your DSL modem into. Also, filters installed at the NID are referred to as splitters, as they filter out the DSL signals from the wires split off of the main phone line.
 
** End of Extract