| In a key phone system, or key system, every outside line is represented by a button on the telephone. If you press the button for line 12, you get the 12th outside line.
In a PBX, the selection of outside lines is done automatically. You press the button for an outside line (usually 9) and the system finds an outside line for you.
In a small environment, a key system can work just as well as a PBX. In a large environment, there are just too many outside lines for the number of buttons you can fit onto an office telephone.
That is the technical difference between a key system and a PBX. PBX's also tend to be more expensive than key systems -- because they have to be smart enough to route calls automatically between internal and outside lines. This required complexity means that PBX's must have compatively complex hardware and software. The presence of this hardware and software means that it is possible to add on additional features, such as call waiting, music on hold, teleconferencing, etc... It's sort of a snowball effect between requirements and technology.
Key systems don't have that kind of processing power. As such, they tend to be less expensive to own and operate.
Key phone systems are more common in smaller environments where there are four or fewer outside lines. PBX systems are used in medium and larger offices. | 
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