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How does asterisk even work from the hardware side? I looked at their site and they just have software instructions. Is there some physical card or box that interfaces computers to landline phones?

Read a bit more to find out. In short, it is a bunch of software that does the same thing that commercial phone switch does. "Phone switch" being a PBX or Private Branch Exchange - The kind of phone system you would find at a business. The phone switch you set up (Asterisk or otherwise) has connections to individual landlines via interface hardware, or you can have it talk directory to VoIP providers. There are several software distributions that make setting it up easy. PBX in a Flash is one. Nerd Vittles has a good getting started guide.

I've had good luck with PBX in a flash. You can run it on a small atom server for small numbers of people: http://pbxinaflash.net/
It works well with the Cisco SPA series phones: http://www.cedarpc.com/cgi-bin/commerce.cgi?preadd=action&key=24600

You can use things like SugarCRM and OpenFire with it. Share documents with MSOffice and a Subversion repository (you can probably even install SVN on the phone server). That's really all you should need to start a small company -- you don't have to think big yet, and when you do you should pay someone else to worry about it so that you can do the important stuff that goes with running a company.

I replaced my home landline with an Asterisk box running on a Supermicro Atom D510 mboard, specifically PBX in a flash, which is the Cliffs' notes version of FreePBX. FreePBX is based on Asterisk, but provides a spiffy web interface for configuration that's more advanced and free-er than the others. That said, you'll still need to be comfortable at the command line on Linux and a text editor such as vi.

With Asterisk, you can do voicemail, have your voicemail emailed to you, have multiple boxes, pay $1.50 per month for a phone number plus $.01/minute for calls with a SIP provider such as Vitelity. You can have conference calls (you'll need to pay $10/channel for g729 if you want to scale at all on home bandwidth, though.)
You can have ring groups, different extensions, etc. I have one for emergency late-night network issues, which only those with the secret extension can access to wake me up.

There's an unlimited number of stupid tricks you can do, but you'll need to learn the difference between trunks, routes, and dial plans. That said, it's pretty cool. But then you'll want to buy Aastra SIP phones, which come with open-source phone applications, so it will cost you more. If you want to light up your in-house phone lines, it's $200 for an FXS card. If you want to use an existing landline as a trunk, it's $200 for an FXO card. (Double check which is which before you buy because I can never remember which is which.)

The best part about running your own PBX is that (1) you can send telemarketers to voicemail hell and (2) it's trivial to fake callerID, which helps with (1).

[...] I'd rather be able to implement them with an Asterisk box [....]

Get on over to PBX in a Flash and download a pre-built VM or ISO. Or, buy it in a bootable USB thumbdrive, or even pre-built in a Asus EEE laptop. There are other oprions, too.

Asterisk used to be a hairball. Now, it's a piece of cake.

And, needless to say, Google won't be mining your SMS and speech-reco'ed voicemail or phone calls so they can "personalize" the advertising you get from their "partners"

A good open source solution for replacing the costly PBX systems is the Asterisk platform http://www.asterisk.org/ If you want even more functionality a good recommendation is a pre-built system which incorporates FreePBX which provides an easy management interface for configuring and maintaining the PBX as well as various built in apps. All of this put on top of a CentOS system. I currently run the PBX In A Flash pre-built package put out by Nerd Vittles. http://pbxinaflash.net/ It is probably one of the easiest to use/update Asterisk systems I have worked with and is by far the most stable.

The reality is that "malicious" code can be inserted into any program, open source or proprietary. However, this "malicious" code is often unintentional, a security hole is created by not locking down a network port or variables are not properly managed. Whether that code is placed intentionally or not is irrelevant, the result is the same; someone can improperly access your program, network, or computer. Certainly we know of a few proprietary software products that have suffered from a security flaw or two (or fifty!).

So it comes down to the real question, when such "malicious" code is found how soon will a patch be made available to fix the problem? This is where Open Source products shine, because you can usually count on a patch being made available MUCH faster than if you had to wait on a single corporation. This is especially true of projects that are popular. Not only because there are more people looking at the code, but so often those programmers are very passionate about the software they contribute to, so they really care that the product succeeds. Open Source products have much more to lose if their product continually has problems, because they are easily replaced. Corporations, on the other hand, will often continue to release mediocre products because they get customers locked in to a data format, or whatever, and can exploit the customer's fear that they will lose data if they switch to something different, thus reducing the incentive to really care about the proprietary product as long as it creates some sort of profit.

There are some commercial products that are responsive and really do care. But this often doesn't last, and to be truthful it sometimes doesn't last in the Open Source world either. So what if a particular project, open or proprietary, starts to fail? If it's a good Open Source project, then other people who do care can easily pick it up and keep it going. In the proprietary world, the product dies and you are orphaned... until an open source project led by previous users reverse-engineers the proprietary one and gives you a way to move forward with the data you started with.

I'm the key IS employee of my organization, and I continually look for ways to get Open Source in the doors to reduce headaches for me. My biggest implementation is going to be our new IP-PBX system based on Asterisk (using PBX in a Flash). So far the amount of money we're saving is about 60% on hardware (even with fancy IP phones, a server computer, and new POE switches), and the functionality available to me is more than triple that of the proprietary solutions.

Another one that seems to be gaining a lot of traction and backed by a lot of online help, is PBX in a Flash - it is created and supported by Nerd Vittles.

They have loads of info on their site, including the obvious requests, like how to setup a new system quick & easy, what phones to look for, what hardware cards or peripherals to use to interface with POTS lines, as well as a list of VoIP providers that they have reviewed and recommend (or don't,) which you can read at Providers - The Best of Nerd Vittles

They also have some stuff you might not think of, such as setting up services on your Asterisk box to tell you the weather report for a zipcode you enter on your phone's keypad, or "MailCall" which allows you to get your e-mail via the phone, or a telephone reminder system... there are lots of options, and you can find out about most of them at Applications - The Best of Nerd Vittles

There are also forums for lots of this stuff:
Nerd Vittles Forum
Voxilla VoIP Forum
PBX in a Flash Script Site

And, of course, the venerable VoIP Wiki at voip-info.org