You must use headphones or the party on the other end will hear the sound from your speakers causing the echo that jcarter refers to. With 'phones on, there is no echo. There is a slight delay, after you speak something before the other party hears you.
I've got a headset, actually, which has a mic plus headphones, but, for some reason, the mic doesn't work in my computer, so I just use my plaintalk mic with the headphones. (it must be some of those headsets jcarter's referring to)
The quality is very good, but, when network traffic, is heavy, you will hear some audio artifacts, at times, but not enough to be annoying.
I don't think I would replace my conventional land based phones, but, at least for the time being, all long distance calls made from my house are done through Skype.
It's really not bad at all.