The buttons were wired for various functions according to the subscriber's requirements.
For extensions on a PBX the button was commonly used for recall (old GPO equipment always favored earth-recall rather than time-break). Pressing the button switched the incoming call to hold and gave you a new dial-tone from the PBX to call the required extension. After speaking to the other person, you could then either (a) Hang-up to have the call on hold switched through to that extension, or (b) Press recall again to ditch your internal PBX call and be re-connected to the held caller. Really not much different to today's systems in basic terms, though on the older PBXs that was about the extent of switching possible (no call forwarding, camp-on busy or other modern features, although the PBX operator could do more from her console).
The GPO also had some simple intercom plans for small offices, typically just two or three phones. The button(s) could be wired to buzz an extension and switch the line to a local DC supply to provide an intercom facility.
In domestic situations, the two most common applications were a bell shut-off switch and for party lines. The first is self-explanatory.
Two-way party lines used to be quite common here in rural areas, and were always the ground-start type. Instructions for party-line customers were always along the lines of "Lift receiver and check that the line is not in use, then press the CALL EXCHANGE button to obtain a dialing tone." (The GPO always used to call it dialling tone rather than dial tone.)
The switch in this case actually had changeover contacts and opened the loop while grounding one side of the line. The phones at each house were actually wired the same internally, but the tip and ring (white and red) leads were just reversed at the connection block.
We didn't have anytrhing like the complicated relay box to ensure privacy on party lines such as Texas-Ranger has described for old Austrian systems.
